The Government's dramatic move to take big stakes in Royal Bank of Scotland and Lloyds TSB/HBOS will transform the landscape of British banking, turning two of the biggest financial institutions in the country into arms of the State. Or maybe not.

The banks taking government money insist that the only significant string attached to the taxpayers' largesse is the temporary scrapping of dividends. Otherwise, the only impact is to make them prodigiously well-capitalised.

Not true, say the banks that have turned down the Government's money. They see the “nationalised” banks becoming grey outposts of a 1950s-style Department of Loans, paying Civil Service salaries and having their every move scrutinised by MPs and journalists looking for a scandal.

The Government itself, needless to say, is trying to have it both ways.

On the one hand, the nationalised banks have committed to maintaining lending to homeowners and small businesses at 2007 levels. Remuneration policy will be vetted and the Government will get its own people on the board.

On the other, ministers insist that that they will have an arm's-length relationship with their new acquisitions. Transparent arrangements will be put in place to ensure that any role for the Government in relation to investment decision-making is clearly defined.

And the new independent directors will be selected by the company on the basis of their business experience, will represent the interests of all shareholders and will merely be rubber-stamped by the Government.

In terms of the commitment on lending, there seems a great deal less to it than meets the eye. On the surface, it looks as if the banks are promising to go on the sort of lending binge that landed us in this whole mess in the first place.

As the economy slows, the banks could only maintain lending volumes at last year's levels by showering their money on people who probably wouldn't be able to to pay it back.

On closer inspection, the commitment is to market actively a large number of loan products at competitive prices. As the “nationalised” banks point out, this is clearly what they would do, anyway.

RBS insists that its plans to “refocus” its capital markets and investment banking business - which inevitably will involve hefty job cuts - were dictated by market conditions and industry trends rather than pressure from the Government.

All the nationalised banks also claim that the Government's demands on pay will merely reflect the way that the market is going in any case. But this is surely the area where there is a risk for the nationalised banks, particularly RBS.

The Government insists that it is not against high pay, just against high pay that does not reflect long-term risk-adjusted returns. But at the same time Gordon Brown declares that “the days of big bonuses are over”.

It is hard to believe that the Government would be happy reading a front page story in the Daily Mail revealing that one of RBS's bankers was paid £2 million “out of taxpayers' money”.

Yet, even if you believe that bonuses will be sharply lower for a long time, Goldman Sachs is going to be paying some £2 million bonuses. And if you are trying to compete with Goldman Sachs, that is going to be a problem. No wonder Barclays, which has just taken on hundreds of highly paid Lehman bankers in New York, has bent over backwards not to take the Government's money.

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