City grandees are calling on the Government to establish a new body focused on tackling the mountain of debt facing companies as a result of coronavirus.
Outgoing Lloyds chairman Lord Blackwell and Legal & General chairman Sir John Kingman are among the financiers telling ministers to set up a "UK Recovery Corporation" to tackle a £36bn pile of toxic debt.
Their idea mirrors UK Financial Investments (UKFI) created after the 2008 financial crisis to manage taxpayers' involvement in bailed-out banks. Sir John is the body's former chief executive.
Lord Blackwell, a former policy chief to Margaret Thatcher and John Major, told The Telegraph last month that he wanted the Government to set up a vehicle that will take on debt from some companies unable to repay their state-backed coronavirus loans.
Sources told Sky News that the aim of the Recovery Corporation would be to issue funding on more manageable terms for SMEs, turn the coronavirus loans into tax obligations that would be administered by the body and be a place where private sector institutions could invest to gradually reduce government exposure.
Other recommendations in the report, which lobby group TheCityUK will send to the Treasury and the Bank of England, include converting the loans into subordinated debt or preferred share capital agreements. It is due to be published later this week.
High street banks have doled out billions in emergency loans to prop up small companies during the crisis, supported by a taxpayer guarantee to cover their losses if a borrower defaults.
However, the current rules require banks to vigorously pursue the debt before turning to Whitehall for what they are owed.
Lord Blackwell said last month a better solution would be to take debt unlikely to be repaid away from banks at a much earlier stage, bringing in either corporate investors or the Treasury.
"I'm dubious about how much private equity will go into these small companies, so I think the best option is probably some state vehicle that takes those debts off the banks' balance sheet," he said.