Those clever investment bankers are at it again. It was surely only a matter of time before banks tried to apply their financial innovation skills to finding ways of profiting from the very crisis that misuse of those skills brought about. Barclays Capital has found ways of pooling risky assets on banks’ balance sheets from several clients into “smart” securitisation vehicles that can be rated by a ratings agency. Unlike discredited collateralised debt obligations, however, this is about slicing and dicing existing assets, not new lending. Goldman Sachs is working on, in effect, a private sector equivalent to the asset insurance scheme run by the UK government. In both cases, this would reduce banks’ capital requirements.

On one level, such initiatives might be welcomed as industry practitioners try to find a market solution to their own problems, reducing the need for taxpayer-funded bail-outs. But there are dangers here. As studies of the origins of the financial crisis such as the UK’s Turner Review have concluded, one of the keys to creating a sounder banking system is increasing the quantity and quality of bank capital – which also, of course, means lower returns. Since the new schemes being developed are designed to cut the capital cost of risky assets, they potentially go against the spirit of such proposals.