Can you rescue and punish failing banks at the same time? I doubt it, which is why I am less optimistic about the success of the UK banking rescue plan than its US counterpart.

It may seem just for the rescuer to appropriate future profits due to ordinary shareholders but those earnings are required to attract new private sector capital and offset prospective uncovered losses.

Compare and contrast the details of the UK and US rescue plans:

• Bank recapitalisation: US - redeemable preference shares with 5% yield and attached common stock warrants, no requirement to stop paying ordinary share dividends; UK - 12% yield,  irredeemable for five years, no ordinary share dividends until repaid.

• Bank debt guarantees: US - free for first 30 days, subsequently charged at flat 75 basis points; UK - fee of 50 bp plus median five-year CDS spread in year to 7 October, implying range of 110-170 bp for major banks.

• Transfer of troubled assets from banks' balance sheets: US - remaining TARP funding of $450 billion available to purchase illiquid securities; UK - final Crosby report awaited but similar programme unlikely.

• Security swap facilities (private AAA for government): US - secondary to direct Fed lending, one-month term, fee determined by auction; UK (special liquidity scheme) - primary means of liquidity support, up to three-year term, fee set at opening three-month LIBOR / overnight index swap (OIS) rate.

• Central bank collateral requirements: US - wide range of assets eligible for discount window access, including performing subprime mortgages; UK - minimum requirement of AAA rating for all facilities.

• Direct central bank lending to corporate sector: US - Fed to buy three-month unsecured commercial paper at 200 bp spread over OIS rate; UK - over Mervyn King's dead body.
  

The penal conditions being imposed on British banks place them at a competitive disadvantage to their US counterparts, increasing the risk that they will require prolonged public support or even eventual full nationalisation.