Greater state control of lending policy was supposed to be a consequence of the government owning a big chunk of the domestic banking system. But recent developments suggest the government may be losing the initiative as lenders seek ways to break the credit deadlock themselves.

A number of banks, including state-owned institutions, are reportedly bringing so-called negative equity loans to the market to allow homeowners to move even if their mortgage is bigger than the value of their house. If the borrower can meet the payments, the banks seem willing in some cases to extend more than 100% financing.

Another innovation is what Michael Dowling of the Independent Mortgage Advisers Federation has called a "reluctant investor" mortgage. This is when the borrower converts an existing homeloan into a buy-to-let mortgage, rents his house to cover the payments, and buys a second house with a new mortgage.

These moves show the banks are attempting to deal with the negative equity problem, even without the approval or leadership of the government, which has pledged many times in the last year that it would get credit flowing again.

In February finance minister Brian Lenihan convened a mortgage debt expert group to come up with solutions to Ireland's widespread indebtedness problem. With up to one-third of householders in negative equity and mortgage arrears officially at 3.6% – unofficial estimates are up to 6% – urgent action was expected. But the group, chaired by KPMG consultant Hugh Cooney, has yet to produce any concrete results.

One source with knowledge of the group's activities said Cooney did not want these activities discussed "outside the four walls", but that concrete recommendations addressing short-term issues around indebtedness were forthcoming. Other sources who had consulted with the group confirmed it was close to putting out proposals.

Nonetheless, there is concern – especially amongst mortgage brokers, who are not represented among Cooney's experts – that whatever the group recommends will not solve the problem.

"I have a good feeling the banks are going to push for more forbearance, which just delays the problem," said one broker source.

In the meantime, the mortgage market shrank last year to just €6bn in new lending – just 15% of the volume in 2006. Most lenders are effectively out of the market, which has allowed AIB, Bank of Ireland and EBS to divide the remaining spoils between themselves in the absence of industry consolidation or other government-led moves to revive activity.

The Financial Regulator, which is in the process of instituting new controls on lending concentrations, became so alarmed at EBS's growing market share that it told the lender to tighten its criteria for first-time-buyers, officials said.

The regulator last week set out its stall in its paper on banking supervision, and plans to pressure bank boards into setting clearer strategic goals, but the sector has clearly been drifting without a clear policy direction for some time.

A similar vacuum has opened up in small business lending, too.

A year ago the Department of Enterprise set up the Credit Supply Clearing Group (CSCG) to address banks' reluctance to lend to SMEs. Again, this group, made up of bankers, business group lobbyists, senior civil servants and state agency representatives, has produced nothing in the way of concrete proposals. According to insiders, the group has not even met in months.

Clearly something has been going on behind the scenes, though. Two weeks ago enterprise minister Batt O'Keeffe said his department was examining the possibility of introducing a loan guarantee scheme for SMEs after studying reports on the matter from Forfas and Enterprise Ireland, which are part of the CSCG. A proposal is expected to come before the government before the summer break in mid-July.

O'Keeffe's announcement in the Dáil seemed to revive an idea that looked dead and buried back in March, when business leaders met with department officials and came away uncertain a guarantee scheme would ever get off the ground. Differences in priorities between the Departments of Finance and Enterprise had stalled the proposals. The Irish Banking Federation, whose members stand to gain from any guarantee scheme, had also withdrawn from lobbying late last year.

Mark Fielding, chief executive of the Irish Small and Medium Enterprise Association (ISME), who only a few months ago downplayed any chance of a loan guarantee scheme, began ratcheting up the pressure last week once it became clear the game was back on. On Monday, the day the Financial Regulator was launching its new banking policy, ISME called for a Central Bank investigation into claims that banks were illegally requesting business owners to put up family homes as collateral. Fielding claimed more than half his members could not get credit.

"These disastrous lending figures are not being helped by the lack of business lending and risk analysis expertise within the branch network," he said, echoing one of the regulator's supervision themes.

"This situation has been allowed to come about by bank management, formerly interested only in elaborate speculation rather than taking a manageable risk in backing ordinary SMEs."

Keeping up the tempo, ISME then released a survey showing less than a quarter of businesses were aware of the new Credit Review Office (CRO), which Lenihan set up early in the year to hear SME loan rejection appeals and to assess and advise on the general state of business lending.

Lenihan appointed ex-National Irish Bank director John Trethowan to head the CRO. He began hearing appeals in April and is due to report to the minister this week. It is understood his first quarterly report will help clarify why banks seem reluctant to lend to small businesses. He will evaluate whether AIB and Bank of Ireland are on target to reach their state-mandated SME lending goal of €3bn each. It is understood the flow of enquiries and appeals is slowly increasing, suggesting businesses are disputing the reasons for loan rejections.

The banks, meanwhile, are continuing to take matters into their own hands. Bank of Ireland is hiring up to 20 new business lending managers while AIB is re-training its loan officers in cashflow lending after many years of lending against collateral. These moves have been met with some scepticism from regulatory officials.

For the moment, though, most of the action has come from banks and businesses, while the government keeps talking behind closed doors.