Britain may have so far resisted a Tarp-style rescue plan, or guarantees over bank deposits that echo Ireland, Greece and Germany (joined this morning by Austria and Denmark) but the British financial authorities cannot be accused of inactivity.

In the past three weeks, cash injected by the Bank of England into the banking system has nearly doubled to a record £114 billion.

But the time is drawing close to when more radical action comes onto the agenda: the possibility of the British Government taking equity stakes in the country’s biggest banks. Recapitalisation, in short.

Such a move is unlikely to prove popular with existing shareholders, who would face dilution and the prospect of a new investor coming it at a more favourable price. It may also be unpopular with the banks themselves — if only for the reason that no one likes to be rescued.

But the key advantage of a cash injection in exchange for equity is that it gives the British taxpayer a stake in the sector’s future recovery. The stock should be in preference shares, which ranks above all other equity, and is best accompanied by warrants, which give the best gearing to future gains.

For the banks themselves, the benefit is that preference shares would enable them to buy out the Government when they become strong enough to do so.

All of this follows the template of Warren Buffett’s investment in Goldman Sachs. But if such a strategy is sound enough for one of the world’s canniest investors, it must at the very least be worthy of detailed consideration in Whitehall.

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