Merck's first aid manual states that “a person in cardiac arrest lies motionless without breathing and does not respond to questions or to stimulation, such as shaking”.

It sounds like the global banking system. The Bank of England (BoE) needs to deliver the equivalent of resuscitation to a banking system in liquidity arrest.

Since the banking crisis began, we have seen a number of fiscal stimuli aimed at addressing the primary symptoms of the crisis - the fast-weakening economy and resultant unemployment.

Last month's government package to support lending in the economy was welcome intervention, but figures from the British Bankers' Association revealed a further fall in bank lending in December and the fear is that the measures may not be enough to deal with a major cause of the crisis: the shrivelled interbank lending market.

Investec estimates that the sterling interbank lending market has shrunk by 30 per cent since the credit crisis began. When coupled with the drying up of other sources of bank funding, the pressure on banks' balance sheets has been extraordinary. Interbank lending remains very shallow, term borrowing for many institutions has virtually dried up and some of the largest European participants have departed from the sterling interbank market. This has led to a dearth of funding and liquidity.

The resuscitative intervention now required is for the BoE to become principal in the interbank lending market. The BoE does not have the balance sheet to allow it to lend, unsecured, into the interbank market and would need to rely on a Treasury guarantee. The BoE does, however, have the risk systems, the market knowledge, the traders and the clout to lend successfully as principal into the banking system - and in all probability resuscitate the market. We are not suggesting that the lending rate is subsidised. We are, however, proposing that the required action is for the central bank to take the role of principal, introducing unsecured term liquidity into the system in sufficient volume and for such time as the market needs to stabilise.

If Bank A comes to the market for £25 million of funding for six months, the BoE should compete for that - at prices consistent with Bank A's risk profile. Similarly for Bank B, which seeks £150 million for seven days and so on. As the BoE builds its risk book and meets demand in the market, we are likely to see the more traditional competitors return. Oxygen will have been restored to the extremities of the system.

The banking market is proving unable to restore itself. As a result, the economy will continue to cycle down. The BoE cannot stand alone as principal in a market for which role it has no risk appetite and no mandate, but a partnership with the Treasury could rectify these factors.

But what about moral hazard? Should the BoE resolve the banks' liquidity problems? In the minutes one has to resuscitate a patient with cardiac arrest, the first aider does not judge the patient - whether a smoker or clinically obese. There is a time for everything. Now is the time to address the system-wide liquidity arrest through a BoE-led resuscitation.

— Bernard Kantor is group managing director of Investec. Brad Fried is chief executive of Investec in the UK

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