Eric Daniels’ determination to escape the suffocating embrace of the State as quickly as possible looked like a dangerous obsession at times. The authorities, particularly the Bank of England, were initially very nervous of Mr Daniels’ claims that Lloyds would be able to get by without using the insurance offered by the Government’s Asset Protection Scheme. The worry was that Lloyds’ finances would prove too fragile if the economy took another turn for the worse and the taxpayer would have to bail it out again.

In the end, helped by a continued recovery in the stock market and an improving outlook for bad debts, he won the day. And it proved a very valuable victory. It only recently became apparent that Neelie Kroes, the European Competition Commissioner, was viewing the Asset Protection Scheme as significant state aid that would have to be penalised severely.

Thanks to Mr Daniels’ obsession, Lloyds has got off relatively lightly, while Royal Bank of Scotland, which couldn’t escape the insurance scheme, has been clobbered.

Ms Kroes seems to have leapt aboard the moral hazard bandwagon — state aid must be punished, otherwise people running or lending to banks in future will be reckless in the knowledge that they will be bailed out by the State. Perhaps. But in the RBS case, the pain from imposing bigger disposals falls mainly on the taxpayer and the staff, which seems a bit rough.

Forcing RBS to sell its insurance businesses may not be a bad thing in itself, particularly since it will have four years in which to do it. But it will boost RBS’s capital and reduce its earnings just at the point where it should have plenty of the former and need more of the latter. It makes life just that bit more difficult, as yesterday’s fall in the share price underlined. Some cynics suggested Mr Daniels’ obsession with escaping from the insurance scheme explained his surprisingly confident declaration that bad debts would peak in the first half of 2009. Yet the third quarter trend does seem to support his confidence, and even the gloomy Mr Hester is sounding a bit more optimistic. Lloyds is starting to look more like a normal bank and it may not be that long before the Government can begin thinking of selling off some of its shares.

By contrast, RBS is looking increasingly like the government-owned “bad bank” that was once proposed. Mr Hester and the rest of the RBS staff have a long, hard job ahead of them.

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