The future shape of banking is becoming clear after the announcement this week of the European Union's proposed revisions to its rules on bank capital and the Basel Committee's revisions to the capital framework. Far from delivering a more utility-like banking system, the regulatory response to the financial crisis is designed broadly to preserve the big bank business model, but with tougher capital penalties on banks' own-account punting and less pro-cyclicality.

The justification for this non-draconian approach is as much as outlined in last week's White Paper from the UK Treasury. Banks with large international corporate clients, it is argued, need to use their balance sheets to make markets and add to liquidity in their clients' interests. The question is whether the potential systemic costs of letting big banks go on like this are acceptable and whether large non-financial corporations can only be properly served by giant banks that are coincidentally too big to fail.