Comment: Bank profits and mortgage pain

The worse than expected fall in profits at Lloyds TSB and heavy bad debt charge is further evidence of the scale of damage done by the credit crunch to high-street lenders.

It will have a knock-on effect on confidence in the banking sector and therefore on the prospects for an easing of conditions in the battered mortgage market.

At a time when the former chief executive of one of Lloyds's rivals, Sir James Crosby, has indicated in a review for the Treasury that no major state intervention would be appropriate to combat rising defaults, the news underlines the Government's inability to escape the political pain resulting from the property downturn.

Sir James was right to say that the state should not start underwriting people's mortgages.

In America, the colossal rescue now being mounted at taxpayers' expense for Fannie Mae and Freddie Mac, which provided an implicit government guarantee for home loans, is clear evidence that creating such institutions, with their ambiguous public-private status, would be the wrong way to go.

And an approach which effectively bailed out bank management guilty of excessive lending in the good times would be hard to sell to voters anyway.

Instead, the market for securitisation, in which mortgage debt is packaged up and sold on to wholesale investors, thereby creating greater lending capacity than high-street banks alone could offer, must be allowed to recover.