There's some life left in the old NatWest yet

But for lethargy and the fact that the free market never works as perfectly as it should, it would be possible to write with some authority right now that the main high street banks have essentially had it, that in a fast-changing world these dinosaurs of retail and corporate financial services are going to die out (a bit like discount houses), becoming little more than fossils embedded in the rocks of history.

As it is, most of them look to be evolving sufficiently swiftly (though Lord knows, progress is slow enough) to ensure passage into the next stage of the Darwinian tree. Yesterday's radical set of announcements from NatWest has clearly demonstrated that there's life and determination left in those old bones yet.

What NatWest is doing mirrors what is happening elsewhere in high street banking. With varying degrees of speed, all the main banks are shedding staff and closing branches. For most of us, the branch network is a largely redundant infrastructure.

Telephone banking, supermarket banking, and further down the line, Internet banking, offer potentially dramatic advances both in terms of customer service and its cost. With the clearers still largely stuck with the cost structure of a bygone age (nationwide branch networks together with supporting infrastructures), banking, in theory, is ripe for the taking by new entrants.

As always, however, it is not that easy in practice. Indeed, given the present buoyancy of banking profits and the scope for offering much cheaper lines of service, you would expect far more competition from new entrants than is actually proving to be the case.

That there is not is partly down to the fact that banking is still essentially a highly regulated oligarchy, and partly because even in today's much more savvy and consumerist world, it remains difficult to dislodge an established banking customer. Changing banks just seems to take more effort than it's worth.

Furthermore, the established banks are proving relatively effective in offering the new forms of banking, even if this is not yet reflected in what they charge for it. In other words, the established players are proving quite adept at preserving their supremacy in the new age. That they continue to hold sway depends very much on the speed with which they can reduce cost. This is not without its dangers, as the Banking Ombudsman's report yesterday demonstrated. One of the most common complaints in a growing body of them was about branch closures and not enough people.

The trick, then, is to adapt fast enough to deter new competition, but slowly enough to manage adequately the retreat in traditional banking methods and infrastructure. On both these fronts, NatWest and others seem for the moment to be doing as well as can reasonably be expected. Though plainly the fat profit margins presently earnt by the clearers will be under pressure, they stand a good chance of maintaining their present market position.

Old Lady throws caution to the winds

Those strange little organisations called discount houses have been given so much warning of their demise by the Bank of England that even the most sleepy has managed to diversify away from its core money market businesses. Indeed, the oddest thing is how long the motherly Old Lady has cosseted and cooed over this tiny band of miniature banks, just about the last places in the City to offer port after lunch. The justification was that they acted as a useful buffer in the money markets against the power of the clearing banks.

If the Bank of England had been obliged to have regular eyeball-to-eyeball confrontations with a bullying NatWest every time it wanted to manipulate short-term interest rates, it might not have come out of the experience very well. Taking a tough line with Union, Gerrard or Cater Allen is like picking on the school weakling.

The bank's ingrained habit until now has been to maintain a tightly controlled register of the people it is prepared to deal with, whether it be in bonds or bills.

Now caution is being thrown to the winds, and anyone can join the party, provided they have the technical expertise, trade repos regularly and are approved by regulators. They must also act as the bank's eyes and ears, agreeing explicitly to feed the Old Lady's hunger for useful snippets of information about the markets.

From next year, as many as 30 or 40 banks, building societies and securities houses are likely to be trading with the bank in the gilts repos market every day, sidelining the discount market in the interest rate setting process (though the discount houses will continue in business, shorn of their monopoly access to the bank's dealers).

By making gilts repos - a form of tradeable debt secured on government bonds - the primary instrument of monetary policy (setting interest rates to you and me), the bank has moved a long way towards the money market methods expected to be adopted for controlling euro interest rates.

Eurosceptics will see this as a ghastly plot. But it is a sensible move away from an eccentric money market system nobody else uses towards a trading expertise that will be useful even if we do not join the single currency.

Southern Water was fatter than it thought

Open up Southern Water's last annual report, published this year just as directors were recommending ScottishPower's pounds 1.7bn takeover bid, and the phrase "creating value for shareholders" leaps off the page. Six months later the claim has a distinctly hollow ring, given that ScottishPower has managed to find further savings of pounds 50m a year by reducing the workforce by almost half.

The received wisdom was that several years after privatisation most of the "fat" had been cut out of the utilities, to the benefit of investors and customers, leaving lean, efficient and clearly focused operations. Yet Southern Water's apparent obsession with diversification into non- core activities looks about as strategically focused as sticking a pin in a page of the telephone directory.

ScottishPower has found savings all over the place. Southern had two separate head offices, one for the PLC and one for the regulated water business, with huge duplication of work. The same excess seems to exist in other utilities too. In the case of Manweb, the regional electricity company bought by ScottishPower last year, the management had slashed the workforce from 4,415 to 3,350 during their bid defence. Yet ScottishPower found another 500 jobs to cut.

Price controls have obviously achieved wonders in improving efficiency but, if Southern Water is anything to go by, they have not gone anywhere near far enough. Both regulators and Government should bear this in mind should they feel tempted to block the two outstanding bids for regional electricity companies on the grounds that they would lead to a loss of quoted comparators.