We are still in the middle of the financial crisis. But it is not too early to think about the shape of the financial sector that may emerge when we get to the end of the tunnel.
Much of what was considered received wisdom 18 months ago has been overturned. In the summer of 2007, you would have found it easy to get agreement on at least three propositions. First, that the independent investment banks had performed rather better, over time, than those embedded in broader 'universal' structures. Second, that groups like Citi had become too large to be effectively managed. And third, in the UK, that no further domestic consolidation of the banking industry was possible, given the large market shares of the major players.
How different things are today. Now, we are not allowed to believe these things. Independent investment banks have been converted to bank holding companies. Some of the huge financial groups, notably JP Morgan, have become even larger - and at one point it looked as though Citi was going to swallow Wachovia. And in the UK, Lloyds and Halifax Bank of Scotland were thrown together at a cocktail party, by all accounts.
But are these new structures sus- tainable? Here one can find very different views. Alessandro Profumo, the boss of Unicredit, came to the LSE the other day to say that investment banking and commercial banking would not be possible in the same entity in future. If he is right, that means more big changes in structure ahead. But is he right?
Some things are reasonably clear. There is bound to be a big cutback in proprietary trading in investment banks. The Federal Reserve will not be comfortable with the kind of risk-taking with the banks' own money that has been prevalent in recent years. So the prop desk traders are migrating to hedge funds. But a different kind of universal bank structure may be possible.
Banks as a whole will be less profitable. It will be much harder to earn the kinds of return on equity to which shareholders were accustomed. If leverage is reduced, and if banks are obliged to hold much more liquidity, it will be impossible to earn 20% on equity on a sustained basis.
It will be particularly difficult for the state-owned, or partially state-owned, banks. Here, the Government seems impaled on the horns of a particularly awkward dilemma. On the one hand, it is bound to have a view on the way its creatures behave, particularly if it is desperately fire-fighting to prevent a recession from turning into a slump. That was the motive for the Government's pressure on the banks to pass interest rate cuts through to customers, even when they need to build their reserves.
On the other hand, the Government as shareholder should want to maximise its return on investment. And in taking the eminently sensible step of setting up a holding company to take on its shares, it has heavily suggested that it is not in the banking business for the long haul.
So these short-term political aims and long-term financial objectives are potentially in conflict. How to resolve this problem is preoccupying the finest minds of the Treasury and the Bank of England. The best answer is probably for Gordon Brown to reach for a new set of 'golden rules'. The market needs some certainty about the Government's intentions. Without it, there is little chance that private investors will wish to come back into the banking business.
In the US, the position is somewhat different. The US Treasury did not give the banks any choice about their government shareholding. And while there has been a lot of sound and fury about remuneration policies, there has been much less focus on interest rates and lending. The US Government has intervened directly in the market to provide credit, but has not tried to control mortgage rates directly.
But the similarities between the North American and European banking systems are still greater than the differences. And in neither case is it possible to get very excited about the returns on offer in the future. So will all the thrills and spills now be in hedge funds and private equity?
Not clear. Private equity has been going through a tough time, too. And the high-rolling days of the leveraged buyout with magical financial engineering have gone for the foreseeable. But the most important part of the private-equity model remains intact - the closer alignment between the ambitions of shareholders and management.
Hedge funds don't look hugely attractive at present. There is a lot less talk about alpha these days, now it has gone negative. But if the investment banks are forced out of the risk-taking business, surely the hedge funds will soon be back? Well, possibly, as long as the long arm of the Federal Reserve doesn't get there first. In the middle of this crisis, the regulatory frontier was shifted abruptly, and the investment banks were brought into the banking fold. Will the hedge funds continue to be left to their own devices? So far, there's little US political appetite for more regulatory oversight. But will that view survive the arrival of Obama? I suspect some hedge fund regulation will be coming down the track.
One certainty is that no-one knows how the financial landscape will be remade. That will be one of the biggest unanswered questions of 2009. There's big money to be made by those who get it right. Place your bets, ladies and gentlemen.
Howard Davies is the director of the London School of Economics.