The Government's banking commission kicked off its year-long consultation today, by publishing a list of the areas the five-person panel intends to consider. This will cover everything from reforms of the banks themselves to reforms of the market as a whole - though right there at the top of the list is the idea of forcing banks to split their retail and investment banking arms.
Commission head Sir John Vickers insists this won't be a City stitch-up, and that the commission will ask 'hard questions' of the banks. But after a year of sifting through evidence - and the counter-arguments have already begun - we'll be very surprised if the splitting-up proposal ends up being their recommendation...
'Experience shows that the risks from not asking hard questions about financial stability and competition are far greater than from doing so,' Sir John said today, as his Commission launched its issue paper outlining the scope of its investigation. Apart from the spin-off idea, structural reforms under consideration for the banks include stuff like limits on prop trading, living wills, and extra capital requirements - while it will also consider the structure of the market itself, apparently with the aim of assessing whether there's enough competition between financial providers on the high street.
So that's a pretty broad remit, and there could be more yet to come. Sir John said today's list of options 'is not intended to be exhaustive'. But he also said that the Commission doesn't favour any particular option at this stage - it's going to wait and see what people have to say. (And quite right too).
Since 'anyone with an interest' is allowed to chip in their tuppenceworth, we can confidently predict that the Commission will soon be drowning in a sea of A4 (unless commissions are paperless these days). In fact, the fightback has already started: outgoing Barclays boss John Varley wrote a rather compelling piece in the FT yesterday pointing out that derivatives, for example (cited by many as a classic example of the worst casino-style investment banking excesses) actually help Barclays to lend a fixed-rate mortgage to a first-time buyer, or help a farmer struggling with his cashflow.
Probably-outgoing HSBC boss Michael Geoghegan has also been on the case, hitting back at the new Basel III regulation that will require bigger banks to hold more capital - his (not unreasonable) view is that capital requirements should be linked to riskiness, not size per se. And the broader point, of course, is that some universal banks have actually weathered the storm better than specialists.
The Lib Dems have been vocal supporters of splitting up the banks - and since Vince Cable will sit on the committee that oversees this commission, they'll have a say in the final decision. But we're not sure if even this group of brainiacs will be able to come to a definitive conclusion that the system would be more stable if the banks were broken up.
And today's issues paper - containing as it does a number of less dramatic, but probably more practical and straightforward alternatives - does suggest that they're not all quite as sold on the idea as Vince and co appear to be.