Comment: FSA bares its teeth to make sure bank pays the price

Sadly, we haven't even got that far with Lloyds and its desire to keep out of the Government's costly loans insurance scheme.

The City and Lloyds' non-Government shareholders – still the majority – seem agreed that the Asset Protection Scheme looks a lot more costly than six months ago.

Many of those shareholders even seem willing to back a massive rights issue, although the 2 million-plus private investors given shares when Halifax demutualised will almost certainly demur.
The Financial Services Authority appears to have thrown a mighty spanner into the works with its decision that Lloyds' designs would not fit its stress test. The FSA cannot force Lloyds to join the APS but it can make life difficult.

The gap between Eric Daniels' scheme and the FSA's stress test looks like being the scale to which each reckons Lloyds' balance sheet has recovered recently. At its half year results last month Daniels said that write-downs on bad loans had peaked in the six months to June.

If anything, the situation is likely to have improved since then, particularly on the Halifax's mortgage book. Recent figures on re-possessions and arrears from the mortgage industry have been positively benign.

The FSA has clearly taken a far more downbeat view. But it is, after all, still facing a bleak future under a Conservative Government.