Washington's $700 billion (£386 billion) bailout is doomed to failure and will see banks returning to the White House before Christmas for new funds, a leading debt specialist has told The Times.

Banks in New York believe that the Washington bailout fund has failed to address the problems facing the world's biggest capital market.

While Congressmen bickered over the terms of the deal, experts on Wall Street pointed out that the plan fails to help bankers raise new capital, the bloodline of banking.

Instead, Chris Whalen, head of Institutional Risk Analytics on Wall Street, said: "The problem with the deal is that it actually crystallises losses. The banks are going to have to deal with the issue that they have sold at a massive discount. On top of that, they are having to face up to the fact that they cannot raise new money. This is the biggest issue right now, that banks can't raise new cash."

He added:"By Christmas, the banks will have come back, they will be asking for help with solvency. Paulson [US Treasury secretary] and Bernanke [chairman of the Federal Reserve] are deluding themselves."

Under the terms of the deal, banks will be allowed to sell their toxic assets at a discount to the Government. In return they must be better regulated and take fewer risks.

Mr Whalen cast aside Democrat issues about fat cat pay, and pointed out that the scheme failed to help banks to inject new money.

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