Given that the U.S. after fits and starts essentially followed the British model for dealing with insolvent banks, this article from the Telegraph may give us a clue of things to come on this side of the pond.

Recall that the British government acted quickly and decisively when they injected capital into their largest banks and took an aggressive stance towards governance. Since that time, and much to the consternation of the politicians, the banks have failed to increase lending. This state of affairs has led to proposals for a subsequent recapitalization, a program similar to the original TARP in which the government would buy toxic assets and a proposal to guarantee loans. So far, none of those ideas are going anywhere and partisan politics seems to be the only thing prospering.

However, any further bid to restart lending by injecting more cash into the banks looked likely to land the Government in controversy.

Vince Cable, the Liberal Democrat treasury spokesman, signalled that his party would oppose the plans. He said: “We cannot have a situation where the taxpayer makes open ended financial commitments to the banking system when the banks then wilfully put their own short-term self interests ahead of the national economy.

“The banks are currently on strike, refusing to lend, and the Government is going to have to play the role of the strikebreaker as earlier governments did with disruptive strikes in the past. We cannot be held to ransom by senior bank managers.

“At present the Government is both confused and weak in its approach to the banks. It has got to set a very clear sense of direction since it is now the principle shareholder in much of the banking system, and then insist that the priority is maintained for keeping the British economy going through continued lending to sound businesses.”

It continues to confound me as to why the political class wants to induce banks to lend into a severe recessionary environment. The initial point of recapitalising banks both here and elsewhere was to shore up their balance sheets and unfreeze the interbank markets. Essentially, preserving the basic financial system. Loans will start to flow as bankable opportunities present themselves. Imprudent loans at this point of the cycle will only perpetuate the problem and probably lead to more calls on national treasuries for bank rescues.

The U.S. has had a smattering of this type of talk with regard to bank lending but it has been muted. The fact that we were in the midst of a transfer of power from one administration to another has probably led to the lack of rhetoric about bank lending. The current impasse in Great Britain may well be a preview of what  lies in store. So watch what transpires there for some clues. It always helps to have someone else leading the way and making the first mistakes.