On Wednesday morning Lloyds TSB’s prospective takeover of Halifax Bank of Scotland stalled the downward spiral of the HBOS share price. By the time the London market closed, shares in Britain’s biggest mortgage lender had fallen another 19 per cent. In the current volatility perhaps only a full statement of the terms of a deal would have provided enough reassurance to investors that HBOS’s woes were over. Yet the advanced talks on a private sector bail-out, evidently encouraged by Gordon Brown, the prime minister, offer the best way forward.

The steep decline in HBOS’s share price after Lehman Brothers’s implosion on Monday meant time was running out for Britain’s biggest mortgage lender. The collapse of the US investment bank put it in a very difficult position. HBOS’s wholesale funding commitments of £278bn and an estimated funding gap of £197.8bn made it vulnerable when banks became wary of lending to each other. As interbank lending rates soared, the markets’ belief in the bank’s ability to meet those commitments dimmed. It was a crisis of confidence, rather than just speculative short-selling by hedge funds, that drove the bank’s shares sharply lower.