The $700 billion bank bailout package being debated in Washington might seem esoteric and a long way from Britain, but the digging-in of heels by Congress, and the fears that the plan might be derailed, intensified the paralysis in money markets yesterday - putting extra pressure on British high street banks to tighten the terms of their new loans, including mortgages.

If you want one reason why Abbey is pulling mortgage deals and Yorkshire Building Society is upping interest rates, look no further than the Senate Banking Committee. The bailout's portrayal by its members as unAmerican and socialist raises doubts that it will ever happen.

Warren Buffett's claim that it was essential to pull America out of what he called “an economic Pearl Harbor” may be true, but that message, coming as it does from Goldman Sachs's potentially biggest single shareholder, may also harden Democratic suspicions that they are being bounced into a quick decision in the interests of Wall Street, not main street.

The all-important question of what the Tarp (Troubled Asset Relief Programme) would look like remains unanswered. At what price it would buy toxic mortgage-backed assets from the banks remains opaque.

Ben Bernanke, the Chairman of the Federal Reserve, suggested somewhere between “hold to maturity” prices and “fire sale” prices yesterday. That still leaves a chasm of uncertainty.

Bankers watching events believe that the assets will have to be bought relatively cheaply for the $700 billion to stretch further and to minimise the eventual loss to American taxpayers.

The conventional wisdom has been that the Tarp will set a price at least higher than the value the assets currently stand at in the banks' books after the writedowns of the past 12 months. They can then sell them for a profit or mark them higher in the accounts, again booking a notional profit.

But there is a more unsettling theory. Some banks have not written down their toxic assets very far and have been able to delude themselves about their true value because no assets are changing hands and there is no market price.

A firm price set by the Tarp would give these less conservative banks, and their auditors, little choice but to announce further writedowns. That could further constrain their lending unless they raise more capital.

Even if Congress yields, the Tarp may not be waterproof.

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