A s any customer of Britain’s big banks knows, they drive a hard bargain. So the Government has found.

The package announced yesterday looks great for the banks. This is not nationalisation. It’s not even part-nationalisation.

The Government is offering new capital with fewer strings than expected. There was no reference to the preference shares that the Government would buy having any rights to ordinary shares attached.

The Prime Minister did suggest that taxpayers could participate in the upside and the Treasury insists that the preference shares may come with rights depending on the individual case.

But the banks do not believe that this is still on the table. The Government gets no votes and no seat on the board.

Before agreeing to inject capital, the Government will “need to take into account dividend policies and executive compensation practices”. That sounds far from the scrapping of dividends and tight cap on pay that some had suggested.

The preference shares will not come cheap. There is talk of a coupon of about 10 per cent. Since that is what some bank shares are yielding, it hardly seems punitive.

The Government has not even insisted on the removal of Sir Fred Goodwin, the chief executive of RBS. At least, not yet. That is a matter for the company, the Chancellor said yesterday.

The sums that the banks will be required to raise are more modest than some reports had indicated. The eight banks (or to be precise, seven banks and the Nationwide Building Society) have agreed to increase the capital in their UK operations by a total of £25 billion. For Barclays, the figure will be about £3 billion, probably in the form of preference shares sold to the Government and offered to its existing shareholders.

For HSBC, Standard Chartered and Abbey National, the figures will be small to nonexistent and are expected to be met from existing group resources. The biggest impact will be on RBS and HBOS, which analysts estimate may have to raise £15 billion between them. They will be the biggest beneficiaries of the Government’s pledge to guarantee new short and medium-term debt issued by the banks.

The £25 billion capital increase will be helpful and should boost confidence in the banking system. But the term funding guarantees are, arguably, more important.

Both HBOS and RBS are heavily reliant on wholesale funding and must refinance billions of pounds of existing debt in the coming months. In the present conditions, that would be extremely difficult. By guaranteeing new debt issuance, for an appropriate fee, the Government removes a big headache for the most-stressed banks.

The Government may have let the banks off lightly, partly because the market reaction to the leaks of the plan meant that it had to get them to sign up fast. Any further delay would have been very damaging, particularly for RBS, which seemed to be on the edge of meltdown.

But the Government, advised, inevitably, by David Mayhew, of Cazenove, has struck the right balance and the package should make a real difference to restoring confidence in the banking system. It looks much more effective than the American bank bailout and it would be no surprise to see it copied by other countries.

Whether it will get banks lending again, as the Government hopes, is another matter. The banks are still going to be very cautious and the problem now may be as much a lack of demand for credit as a lack of supply. To tackle that may need more than a half-point cut in interest rates.

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