Banks' credit crisis solutions have echoes of 1929 Depression

Perhaps the most intriguing parallel, though, is the crude attempt at self-preservation made by the investment trusts in 1929 and the banks now.

In the great crash, investment trusts with vast cross-holdings in each other tried to stem their collapse by buying up their own stock in what the economist JK Galbraith in his book, The Great Crash 1929, described as an act of "fiscal self-immolation". At the time, "support of the stock of one's own company seemed a bold, imaginative and effective course," Galbraith wrote, but ultimately the trusts were just "swindling themselves".

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To free their books of the estimated $1,000bn (£505bn) of sub-prime assets and $340bn of leveraged loans banks have been left carrying since the credit markets shut down last year, lenders are offering to sell these damaged assets cut-price and - crucially - are willing to lend investors the money to buy them. In other words, the banks are providing new debt for the old debt they no longer want.

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There have been two big public deals where the banks have provided funding for the purchase of the debt or sub-prime assets they own. UBS sold a $22bn portfolio of sub-prime assets to US fund manager BlackRock and a consortium of banks that financed last year's £9bn Alliance Boots merger offloaded £2bn of the debt to private equity.

Less publicly, bankers say "everyone is looking at this". Citigroup and Deutsche Bank are each believed to have off-loaded $10bn-$12bn of US leveraged loans in recent months, part-funding the purchase themselves. The same banks, as well as Merrill Lynch, have found buyers for tens of billions of dollars of their sub-prime debt, with similar funding arrangements.

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Because the banks can argue that this is a genuine transfer of risk, they can reduce the amount of capital the rules require them to set against the assets. UBS says that the move will provide 0.2-0.25 percentage points of capital relief - lifting its tier one ratio, a key measure of financial strength, above the current 10.5 per cent.