As government ministers and officials ponder what they can do to get the banks to step up lending, there is increasing focus on the need to get “toxic” assets off the banks’ balance sheets.

The practical difficulties with such a “good bank, bad bank” strategy are formidable. But advocates argue that the banks are so worried about the potential losses on bad assets as the economy slows that they are too nervous to take on profitable new lending.

The problem for the banks is that removing the bad assets would involve big writedowns, which in turn could leave them requiring yet more capital.

Analysts at JPMorgan estimate that if the banks were to put a fair value on their assets now, to reflect a serious recession, the expected losses on the bad loans could be £37 billion for RBS, £35 billion for Lloyds/HBOS and £21 billion for Barclays. Such losses would require Lloyds/HBOS to raise £13 billion of new capital, RBS £6 billion and Barclays £3 billion.

RBS and Lloyds/HBOS, where the Government is already a big shareholder, could ask the taxpayer for a bit more.

But it would be a huge headache for Barclays, which caused fury among its British investors by opting for expensive money from the Gulf rather than take money from the Government.

Barclays would struggle to repeat that trick, which, I am told, almost ended in disaster.

The injection of £3.5 billion by Abu Dhabi was agreed verbally by Sheikh Mansour bin Zayed al-Nahyan, a member of the Royal Family and the owner of Manchester City Football Club. Yet when it came to signing the paperwork and stumping up the money, Abu Dhabi’s ruling family apparently had second thoughts.

Barclays apparently came very close to losing the money, but, in the end, the investors decided that the reputational cost to Abu Dhabi of pulling out of the deal would be worse than the cost of going ahead.

John Varley and Bob Diamond really don’t want to go through that again.

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