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Anthony Hilton: The incredible shrinking City may not be all bad

We may still think the bonuses paid to City bankers are a disgrace but there are significantly fewer of them now than there were a couple of years ago. According to the Centre of Economics and Business Research the total number of jobs in City-type financial services has slumped from 354,000 in 2007 to 250,000 this year, a drop of well over a quarter. But the amount paid out in bonuses after Christmas will have fallen even more, to the lowest for about 15 years.

The research house reckons the gross figure will be around £1.6bn. This is a third of last year's payout and only about an eighth of the total in the bonanza years of 2007 and 2008 when employment peaked.

It is what lies behind the figures which tells the real story. There has been a quite astonishing slump in financial activity this year. Derivatives trading is down by 20 per cent, domestic mergers and acquisitions activity by a third and cross-border deals even more.

In recent months it has become almost fashionable to say the City is too big, and the country would be better off if it were significantly smaller. That is what seems to be happening. And if we were to separate the effects of this contraction from the overall figures for economic growth we might well find the rest of the economy is doing a lot better than we assume.

Banks can keep loans up if they change culture

Every time someone in government suggests the banks would be safer if they held more capital against their loans, the banks say they could only increase their capital by cutting back on their lending. It is one of the ways they routinely scare the government.

On Tuesday a poacher turned gamekeeper exposed this claim for the nonsense it is. Michael Cohrs made his career at Goldman Sachs but he is a member of the group in the Bank of England whose job it is to keep the system safe for the future. In a speech on Tuesday he said banks could easily meet such demands without it having a material effect on their ability to service their clients.

Mr Cohrs says they could cut back without diminishing their ability to supply credit or lend to SMEs. But it would require them to change their culture.