Alistair Darling faces demands from a senior Labour MP to nationalise RBS and the newly merged Lloyds group as market confidence in the banking sector continues to haemorrhage.

John McFall, chairman of the Commons Treasury committee, writes in today’s Financial Times: 'If it is to happen, the sooner the better. Let us get it over with – nationalise the pair of them.'

An article co-authored by Jon Moulton, the private equity veteran and founder of Alchemy Partners, says the government’s new insurance scheme, announced on Monday, will help cleanse the banks’ balance sheets of toxic assets. But it argues that nobody would trust the banks enough to lend freely to them or place deposits without a comprehensive government guarantee.

The Treasury insists that, in spite of the collapse in the share prices of RBS and Lloyds during the past few days, there is no reason to take full control. That might change if retail or wholesale depositors take fright and there is a run on either bank, although the Treasury does not expect one because it is implicitly standing behind all deposits.

Financial Times, Daily Telegraph