Public pressure for full nationalisation of the banks will mount if they do not return swiftly to normal lending to small businesses, a senior MP has warned.

Labour's John McFall, who chairs the House of Commons Treasury Committee, said that the Government may have to step in again to help the banks if last month's £37 billion recapitalisation proves not to be enough.

He accused the banks of "sitting on their hands" instead of using this massive reservoir of cash to provide businesses with the loans they need to stay afloat.

Mr McFall said: "If the banks do not play ball, and will not resume lending, then the demand for full-scale nationalisation may well grow.

"This strategy was successful in Norway, Sweden and Finland between 1991 and 1993. With major banks under public control, the Government would be in a position to instruct them to raise their levels of lending.

"We may not want to go that far. But the banks do have a responsibility to society which they must fulfil. They should acknowledge that responsibility and start lending - now."

With little or no money currently available for the 4.7 million small and medium-sized businesses which employ 13.5 million people in the UK, Mr McFall said banks should not be hoarding their capital but making money available for lending. He suggested banks may be diverting their income towards funding the cost of the recapitalisation package.

"The £37 billion funding to be provided by the Treasury is expensive, costing the banks 12% per year," he said.

"Banks may be diverting much of their income towards repaying this aid, rather than expanding their loan books. In my view, this must stop: banks may have to get used to the idea of being part-nationalised for a longer time.

"If they don't, then one answer would be for the state to step in again and guarantee mortgages and other retail loans."

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