Last week was not glorious for the banking industry. Fannie Mae and Freddie Mac needed government support; regional savings banks in the US wobbled, and one of them, California’s IndyMac, failed; investors responded to a succession of capital-raisings by UK banks with disdain; and Merrill Lynch, the Thundering Herd itself, announced yet another $9.4bn in writedowns on its assets. Yet what is now happening – more than a year after the first subprime problems emerged – is that problems are being brought into the open: and admitting a problem is the first step to solving it.

Banks have not met many new problems this year but their existing woes have become more acute. Mortgage markets have deteriorated, not bounced back, so more assets have to be written off. Banks with ample customer deposits remain reluctant to lend to their weaker brethren and the securitisation markets remain closed. In anticipation of recession, meanwhile, markets now anticipate bad debts across banks’ lending books.