For many years Gordon Brown used the annual Mansion House speech to tell the City of London what it wanted to hear. The new Chancellor, George Osborne, certainly did not come to flatter the titans of the financial services last night when he delivered his first address to the same audience. But will Mr Osborne turn out to be the radical reformer of high finance that he needs to be? Does he grasp the need for a fundamental shake-up of the sector to protect the interests of the banking customer and the ordinary taxpayer?
The Chancellor spoke at some length last night of his planned regulatory overhaul, which will dismember the Financial Services Authority (FSA) and transfer the bulk of its powers to the Bank of England. The FSA was, indeed, next to useless in the years of the long boom. And it is entirely possible that the Bank of England, under a practical former governor such as the late Eddie George, would have performed better both in curbing the excesses of firms in the credit bubble and coping with the crisis when it broke.
But it is rather a stretch to believe that had the Bank of England been in charge of regulation over the past 13 years there would have been no emergency in the first place. And the Conservative Party's emphasis in recent years on the need to transfer regulatory powers to Threadneedle Street felt like a crude attempt to pin the personal blame for the financial meltdown on Mr Brown (who established the FSA in 1997) rather than a considered response to what went so disastrously wrong in the financial services sector. It still smacks strongly of party politics now that they are in office.
And, looking forward, far more important than who does the job of regulating the financial sector, is what they do. In one sense there is consensus on what needs to be done. Banks need to be forced to hold more capital. The use of leverage must be much more restricted. Derivatives need to be traded on a central, transparent exchange. Mr Osborne also proposes to establish a Financial Policy Committee at the Bank of England with powers to ration credit and keep an eye on asset price inflation. Such powers certainly fill a glaring gap in the regulatory armoury.
Yet just as important is the mentality of the regulator. The FSA saw the world through the eyes of those firms it was supposed to be monitoring. The new regulators need to regard themselves as gamekeepers, charged with keeping the poachers of the financial services in line, rather than facilitating cheerleaders of a national success story called the City of London.
Overall, Mr Osborne has been a mixed bag as a banking reformer since taking office. His pledge to push ahead with a levy on the banks without waiting for international agreement is encouraging, suggesting he will have no truck with the old excuse that unilateral action would harm the City's global competitiveness. But his decision to order a review on splitting up the banks does not suggest conviction on this crucial area of structural reform.
The case for a separation of retail banking from the casino operations of investment banking is already made, not least by the cross-party Future of Banking Commission, which delivered its report earlier this week. Mr Osborne's decision to put this question up for a year-long review – despite advocating a split while in opposition – feels like an invitation for the still powerful banking lobby to exert its influence behind closed doors.
For all his stern words at the Mansion House last night, it remains to be seen whether Mr Osborne has made a decisive break from the servile attitude of the previous government towards the City of London. As always, it will be actions that speak louder than words.