The 2008 financial crisis demonstrated that the structure of global banking had become commercially unviable and systemically fragile. Stabilising that structure was therefore exactly the right short-term response and exactly the wrong long-term response. Governments have found this paradox hard to cope with. Mostly they have not tried. Politicians in the US and across much of Europe have become corporatists, tending to equate the success of an industry with the interests of large companies in it. Their counterparts in the UK and Switzerland are the exceptions among the leading financial centres in not succumbing to this mistake.
Switzerland, smaller than these other countries but home to giant banks, was brought closest to national bankruptcy by the 2008 crisis. The country then led the way in demanding higher capital requirements – higher than those proposed in meetings held in the town in the north of the country where international meetings of banking regulators are convened. The Swiss National Bank recognised the futility of the Basel process of attempting to fine tune capital requirements to a particular risk profile of individual banks. It understood that the only way of providing adequate capital for a future that models will certainly fail to predict is to have lots of it.
The UK has gone farthest in the direction of reform. Not far, and not quickly, but farthest. The crucial issues lie in the structure of banks themselves. It is not so much that UK banks are too big, but that they are too complex. Their combination of activities creates conflicts of values, of interests and of objectives. A culture of investment banking that is dominated by trading is incompatible with the requirements of reliable retail banking. Central banks and governments have flooded banks with funds to support domestic lending, but the balance sheets of these banks remain dominated by transactions with other financial institutions.