One of the architects of HBOS’s expansion into a high street banking giant is to take the helm of a new Government-backed scheme that will attempt to break the logjam in lending to struggling small businesses.
I have learned that Sir Peter Burt, the former chief executive of Bank of Scotland, has agreed to chair an advisory board that will establish the framework for a new British Business Bank being set up by George Osborne, the Chancellor, and Vince Cable, the Business Secretary.
The initiative will be a crucial test of the credibility of the Government's economic strategy in the run-up to the next general election amid continuing evidence that small and medium-sized companies are being starved of credit.
Mr Cable is expected to announce details of the new Business Bank in a written ministerial statement on Thursday.
In this month's Autumn Statement, Mr Osborne said it would be seeded with £1bn of Government funding, but there has been little new detail about a venture that is not expected to become fully operational until 2014.
Nevertheless, Sir Peter's recruitment is a coup for the Government. He is one of a small band of senior British bankers who remains untainted by the financial crisis, having stepped down as the deputy chairman of HBOS in 2003.
Sir Nigel Rudd, the chairman of Heathrow Airport and the bank-supported Business Growth Fund (BGF), has also been asked to join the advisory board for the British Business Bank to ensure an element of co-ordination between the two projects.
The BGF takes equity stakes in UK-based SMEs (small and medium-sized enterprises) but has faced criticism over the pace at which it has begun investing its £2.5bn fund.
It is unclear whether Sir Nigel will accept the invitation to join the advisory board, according to insiders who said on Tuesday that Stephen Welton, the BGF's chief executive, could take the role instead.
The BGF is among a long line of SME lending and financing initiatives unveiled since the Coalition was formed in 2010.
Among them, the flagship Project Merlin lending targets and the National Loan Guarantee Scheme were seized on by critics for failing to drive credit through the economy.
Earlier this year, Mr Osborne launched Funding For Lending, a programme that uses the Government's balance sheet to flood banks with cheaper financing. Its take-up so far has been disappointing.
Britain's major banks have consistently argued that SME lending is demonstrating anaemic growth rates because of weak demand in a stagnant economy.
They also say that Government-inspired regulatory reforms are forcing them to shrink their balance sheets at a time when they are becoming a less attractive investment proposition to both debt and equity investors.
Mr Cable has held discussions with Joaquin Almunia, the European Union competition commissioner, about the state aid implications of the new institution.
Whitehall sources say that it will not be a bank in the traditional sense, but that the job of the new advisory board will be to work out exactly how it should operate and how it can ensure credit flows to SMEs more quickly than it has since the banking crisis began in 2007.
The appointment of Sir Peter to chair the British Business Bank advisory board, rather than a senior industrialist, underlines a growing feeling in Whitehall that banking expertise is required to help untangle the "alphabet soup" of Government-backed lending schemes.
As chief executive of Bank of Scotland between 1996 and 2001, Sir Peter engineered its merger with Halifax to create a high street behemoth.
Sir Peter's recruitment, which is expected to be a temporary one, follows a period of five years during which he has maintained a relatively low profile. He stepped down as chairman of ITV, the commercial broadcaster, in 2007.
A year later, he led a brief and ultimately unsuccessful campaign to unseat the management of HBOS and prevent the bank's rescue takeover by Lloyds TSB.
Sir Peter, who is 68, could not be reached for comment on Tuesday, while a spokeswoman for Mr Cable declined to comment.