Banks have been told to resume lending or face state control.
The chairman of the treasury select committee has warned that banks will face calls for full-scale nationalisation if they do not start lending normally again. Writing in the Telegraph, Labour MP John McFall said banks have a responsibility to society and insisted they must fulfil this responsibility or surrender their independence.
He suggested that while the government's £37 billion recapitalisation will save the banks from collapse, it may not be enough to kick-start the credit markets. Indeed, he pointed out that despite receiving bailout money, many banks appear reluctant to start lending once again.
According to Mr McFall, pessimism among the banks may be responsible for their unwillingness to hand out loans and mortgages. But since their actions are hurting individuals and businesses, the government must find a way to make banks "loosen the purse strings".
"If the banks do not play ball and will not resume lending, then the demand for full-scale nationalisation may well grow," he stressed. "With major banks under public control, the government would be in a position to instruct them to raise their levels of lending."
Figures from the Council of Mortgage Lenders show that last month there was a seven percent increase in gross lending on home loans - from £17.5 billion in September to £18.7 billion in October.
