A leading Scottish politician has said the Government should seriously consider establishing a state bank so that businesses are able to reach credit during the recession.

Senior Labour MP John McFall, chairman of the Commons Treasury Select Committee, suggested that the Post Office transform itself into a full provider of financial services.

But he said that if a new state financial institution was required to deliver much-needed lending, then "so be it".

In a statement, Mr McFall said that credit lines to cash-strapped businesses were "drying up" and the chances that bank lending would soon return to 2007 levels were slim.

The most trusted institutions now resided in the public sector, he said.

"We have seen savers flock to trusted, publicly-owned institutions such as Northern Rock, the Post Office and NS&I, as well as mutual organisations," he said.

"The Government is well aware of the level of public trust that exists for these institutions."

Mr McFall added: "The Post Office, having secured a vote of confidence from the Government with the renewed Card Account contract, now needs to transform itself into a full provider of financial services.

"What better way to set it on this route, than to provide it with responsibility for realising the Government's lending ambitions?

"However, if it takes a new state financial institution to deliver this much-needed lending, then so be it."

Mr McFall said that individually, banks were acting "rationally" by retaining their capital and curtailing lending.

But this was "suicidal for the country" as they risked dooming the economy to an even deeper recession.

He said: "A year ago such a demand from a left-wing politician would have provoked a 'loony left' response.

"But no more; after the extraordinary self-induced implosion of the financial system, the future of the market system now rests in the hands of governments. The politicians are the only show in town."

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