Now that £1,300bn of taxpayers’ money – give or take a few quid – has been committed to bailing out the UK’s banks, the chairman of the Financial Services Authority has concluded that one of the causes of the crisis must have been “deficiencies in key bank capital”.

It’s easy to criticise this week’s report from Lord Turner for its statements of the bleeding obvious. But then it’s easy for a regulator to be wise after the event. What really matters is how the lessons of the past are used to shape our financial futures. And here, the Turner report seems to take a worryingly inconsistent approach to going back to the future – if you’re a borrower or private investor.

Not that you can tell from the first few pages, which usher in a brave new regulatory world in a torrent of bureaucratic newspeak. Bank regulation and supervision will be based on “a system-wide ‘macro-prudential’ approach”, requiring “counter-cyclical capital buffers”, and control of “‘shadow banking’ activities on the basis of economic substance not legal form”. Then, the tone waxes intellectual, challenging “the assumptions on which previous regulatory approaches were built – in particular the theory of rational and self-correcting markets”.

Unsurprisingly, most of the vested interests have been quick to praise the wordy radical peer. “We agree with Lord Turner that there were insufficient challenges to the assumptions,” said an unctuous Building Societies Association.

But what about those of us who’ve been “micro- prudential” for years, maintained our own “capital buffers”, and invested rationally in “shadowy” offshore hedge funds at our own risk? As Adrian Lowcock of Bestinvest pointed out: “Irrational activity in the markets was triggered by excessive greed in the banks, a lack of active supervision by the regulators, and a government eager to encourage the ‘man on the street’ to borrow more.” Why should we now be regulated off the street and out of the market?

Responsible mortgage borrowers should certainly not be regulated back to 1980s-style income limits. Turner hesitates over saying so – in spite of claims in one newspaper that middle England will be walloped by limits of three times income – leaving a decision until September.

But, as Ray Boulger of broker Charcol reminds us: “Three to 3.5 times income was the norm 20 years ago when mortgage rates were frequently into double figures… in a low interest rate environment, a higher level of borrowing is clearly more affordable.” Affordability and creditworthiness are the only sensible regulatory criteria. Banks wouldn’t be in this mess if they hadn’t advanced the same income multiples to benefit claimants as they did to unsackable civil servants. “It is important that credit remains accessible to creditworthy individuals,” says Peter Vicary-Smith of Which? in what may become a six-month campaign.

Nor should offshore hedge fund investors be regulated like recalcitrant bankers, in spite of the report’s suggestion that they “could evolve in that direction in future”. Robert Finney, head of financial regulation at Denton Wilde Sapte, the law firm, put this down to Turner’s “much quoted duck factor” – to paraphrase, if it quacks like an onshore fund, it should be regulated like an onshore fund, no matter where it is in the water. But as Andrew Baker of the Alternative Investment Management Association says, hedge funds will never evolve into 50 times leveraged vehicles, like banks. More to the point, hedge funds are self-
correcting: their investors knowingly bear the risks, take all the losses, and don’t go running to the government for billion dollar bail-outs.

Bank customers and shareholders, however, should be regulated back in time, to when the 1933 Glass Steagall Act enshrined a regulatory separation of commercial and investment banking. Such a separation would ensure that high street deposits were never put at risk by incompetent derivative trading, and allow markets to deal rationally with “casino” investment banks – by letting them go bust, without any cost to savers or taxpayers. But, for some reason, this ultimately macro-prudential measure is one that Turner demurs on.

An even simpler regulatory reversal could prove as effective, though, according to one economist I met this week: revert to the old seating plan and glassware at the Bank of England luncheon table. Go back to inviting outside practitioners, rather than tripartite pen-pushers, and serving wine, not water, and the regulators would stand a better chance of becoming wise before the event.

matthew.vincent@ft.com