Anthony Bolton thinks that now is a pretty good time to buy bank shares. London's stockpicker sans pareil reckons that the liquidity crisis is beginning to ease.

And the lesson of history is that buying bank shares at the time that banks come cap in hand for fresh equity has been a successful strategy.

Undeniably bank shares are starting to look cheap by some measures.

Alliance & Leicester was yielding 12 per cent yesterday after its latest confession of treasury misjudgment.

Even if it takes the axe to the dividend - and there is little doubt that it will have to - the market has already discounted a lot of the bad news.

Some banks will undoubtedly reveal new, self-inflicted wounds. However, the big unknown is the degree to which the credit crunch now feeds through into the real economy and bites banks for the second time.

A mild slowdown over the next 18 months is already factored into share prices. A deeper and more prolonged chill is not. Banks can weather a few more months of credit market paralysis.

Even Alliance & Leicester has enough wholesale funding to last it until the spring of 2009. Banks can withstand a medium-intensity slowdown that pushes corporate and personal defaults gently higher.

However, it is not impossible to envisage something economically nastier. It is this, ultimately, that is souring sentiment and pushing some bank shares close to record lows.

One aspect of the raft of economic bad news yesterday may, ironically, be a lifesaver for the banks, although no one wants to admit it: inflation.

If it continues to take hold, inflation will erode the real value of the debt burdening so many in Britain and help to float banks away from the rocks and into calmer waters.

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