Government in total confusion over bank lending - Cable

He said: "The Government is in total confusion about how to deal with the banks.

"Ministers are calling for additional lending to support business while at the same time requiring cutbacks in lending in the interest of greater caution, which is further reinforced by the FSA's capital requirements.

"The Government must not duck its responsibility. It must appoint directors to the nationalised and semi-nationalised banks and clearly set out how these banks should operate.

"The centrepiece of the Government's strategy must be to maintain lending to British companies to keep the economy going.

"The existing proposals on repossessions are woefully inadequate; the Government's mortgage rescue plans cover only 6,000 households, according to the CML, despite the fact that 170,000 households are estimated to have been in arrears for more than three months.

"The Government must lift some of the restrictions on the mortgage rescue package, particularly the restriction that excludes people in negative equity and it must put in place a regulated system of sale and rent back.

"The Crosby Report's proposal for the Government to guarantee mortgage backed securities is entirely inappropriate; it would be seriously irresponsible to go back to a failed model of mortgage lending.

"The industry should now be exploring new products to restore faith in mortgage lending.

"One option for providing safe, simple and cheap mortgages would be to insure them through the market for the first 5 years to cover all but deposits."