In one sense, nothing has changed as a result of Alistair Darling's proposed reworking of the Northern Rock balance sheet. No extra public sector cash is being injected into the nationalised bank as a result of the conversion of £3 billion of taxpayer-funded loans into equity. In theory, what taxpayers lose on the loan swings, they gain on the equity roundabout. In theory, Northern Rock will fetch much more if and when the Government feels able to sell it back into private hands. And as Mr Darling was only too keen to point out, Rock is far from alone in needing to strengthen its balance sheet. Barclays, Royal Bank of Scotland, HBOS and Bradford & Bingley have all already had to resort to equity infusions as a result of the arctic conditions in the banking world.

In practice, however, there is an unnerving smell about this transaction. Debt-for-equity swaps are typically undertaken by companies in deep trouble. Debt holders typically exchange a pound's worth of debt for a few pence worth of equity. In the event of a winding-up, equity holders rank lower than debt holders and other creditors in the queue for recompense. Now the Treasury will have to sell what's left of Rock for at least £3 billion just for taxpayers to come away unscathed. For comparison, Alliance & Leicester, a bank in much better health than Rock has just been sold for a mere £1.3 billion.

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