Bankers uneasy about the prospect of the relatively untested George Osborne becoming chancellor of the exchequer must have shuddered at the news that Vince Cable, chief scourge of City “fat cats”, was taking up Lord Mandelson’s mantle as business secretary.

The former Liberal Democrat spokesman for the Treasury has been one of the Square Mile’s fiercest critics after the financial crisis, calling for a break-up of big banks such as Barclays and Royal Bank of Scotland and virtual elimination of bankers’ bonuses.

But the proposals for banking reform announced by the new coalition government appear to take a much more measured approach to the task of reshaping Britain’s bloated banking sector.

Both the Conservatives and the Liberal Democrats have softened their stance on the issues that will have a lasting impact on Britain’s competitiveness as an international financial centre: first, the imposition of some sort of levy on the banking industry, and second, whether the big banks should be broken up.

While the coalition agreement paves the way for introduction of a bank tax, the lack of detail offered suggests a final proposal is likely to take into account the continuing international dialogue on the ideal form for any such levy.

That is good news for a sector that is desperate to avoid so-called regulatory arbitrage across different jurisdictions, with the UK’s big players disadvantaged compared to its European or US rivals, or vice versa.

On the potentially explosive issue of breaking up the banks, and forcing them to separate their riskier investment banking activities from their more pedestrian retail banking operations, there also now appears to be much less urgency to the parties’ manifesto pledges.

While both the Tories and the Lib Dems initially supported a full-scale break-up of the big universal banks, the coalition government has instead agreed to establish an independent commission, which will be given a year to investigate how banks could be broken up in a “sustainable way”.

Industry analysts have long warned that pressing ahead with a large restructuring of big, diversified banks such as Barclays, HSBC and RBS without international agreement would carry significant risks for the industry.

“There is enormous tension between the interest in London having world-leading banks that can play in the international field versus all of the arguments for splitting casino banks from deposit takers,” said Jonathan Herbst, head of financial services law at Norton Rose. “It is difficult to believe a Conservative-led government that wishes to be credible in the City and retain a thriving financial services sector would do this.”

Perhaps more of a surprise was the unexpected reprieve granted to the much-maligned Financial Services Authority, which the Tories had threatened to scrap as part of a radical overhaul of regulation.

By retaining the City watchdog while bringing forward proposals to give the Bank of England full control of overall financial stability as well as greater oversight of day-to-day issues confronting individual banks, the coalition appears to have addressed one of the biggest criticisms of Labour’s tripartite system of regulation: that there was no single body in charge of protecting the integrity of the system when the crisis unfolded.

Little detail was provided in the coalition agreement regarding a possible inquiry into competition in the retail banking sector – one of the Conservatives’ core campaign pledges – or the party’s plans to sell off stakes in the two part- nationalised banks, RBS and Lloyds Banking Group.

There is no question, however, that a new government with Mr Cable in a prominent role is still likely to hit bankers where it hurts most – in their wallets. The Lib Dems may appear to have sacrificed their most extreme pledges on bonuses – such as limiting cash bonuses to £2,000 – but the agreement retains ominous language on taking “robust action to tackle unacceptable bonuses”.

There are likely to be far fewer champagne corks popping next bonus season.

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