In a few months' time we may look back at Sunday's decision by the US Government to take control of Fannie Mae and Freddie Mac and see it as the beginning of the end of the credit crunch. We may - but there are many other clouds hanging over the markets that will have to clear before the financial weather improves.

In the United States, the bailout of the terrible twins will bring some immediate relief in the blighted mortgage market. So far this year, the pair have accounted for almost three quarters of new home loans in the US.

Even though the US Government had made clear that it would stand behind Fannie and Freddie, the rate at which they could borrow had been rising. This, in turn, had pushed up mortgage rates.

The Government's move had an immediate impact on US mortgage rates yesterday and it should bring forward the point at which American house prices stop falling.

Because the debt that Fannie and Freddie issue and the mortgage-backed securities that they guarantee are so widely held around the world, their failure would have had a disastrous impact on the world financial system.

The removal of that possibility produced wild swings in financial markets yesterday. These included a 3 per cent surge in the Korean currency amid relief that the central bank's foreign exchange reserves, a large portion of which are held in Fannie and Freddie bonds, were secure.

Some British banks, such as RBS and Barclays, are also big holders of Fannie and Freddie debt and will benefit directly from the bailout. To the extent that the move helps to stabilise the US housing market, it will also boost British banks' other US mortgage-related holdings.

All of which should encourage the banks to lend to customers and to each other. The move could also hasten the return of US institutions, which had been a key source of wholesale funding to British lenders.

The early market reaction was not particularly encouraging, however. While bank share prices jumped, the cost of interbank borrowing hardly moved. And while a number of banks and building socities cut their mortgage rates yesterday, that had nothing to do with the bailout and merely reflected an earlier reduction in market interest rates.

The problem is that while the bailout is good news for bank balance sheets, the worry now is more what impact the slowing economy will have.

Some analysts are predicting already that leading banks will be forced to raise more capital to cope with bad loans resulting from the downturn.

The market reaction to the bailout yesterday rather overshadowed good news on inflation that could prove just as important. The sharp decline in producer prices between July and August boosted hopes that the Bank of England will feel able to cut interest rates before the end of the year.

The bailout may also have another indirect impact on the banks by increasing pressure on the UK Government to take bold action.

Bankers said yesterday that they hoped that it would convince Alistair Darling, the Chancellor, that the Bank of England's special liquidity scheme for UK lenders should be extended beyond October, and possibly expanded. If Sunday is to prove a turning point, the UK authorities will now have to do their bit.

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