Last week, I dreamed of Financial Authorities that were good for Britain. Unlikely, I know, but in this fantasy The Financial Conduct Authority had given up on its mission to eviscerate the UK’s financial services and embarked on a crusade to make them stronger.  This Paulene conversion had begun with the Treasury’s brief to strengthen competition, particularly in the banking sector.  This was puzzling for them as they had previously been trying to standardise everything.  But competition is about choice and choice means allowing businesses to be different.

It will be a while before the inside story of the Co-op’s pull-out from the Lloyds HBOS deal emerges, if it ever does, but some aspects are immediately apparent.  The HM Treasury has failed, at least for now, to achieve their twin goals of downsizing Lloyds HBOS, as required by Brussels, and bringing competition to the retail banking sector.  The deal could have transformed the Co-op from a small player to a serious retail bank.

The Bank of England’s Financial Policy Committee has announced an increase in capital ratio requirements for banks and the FSA announces a reduction.  The former is, of course, for existing banks and the latter for new banks.  Higher capital ratios are intended to stop banks going bust so, on the surface, it is odd that those that are unlikely to be at risk now their days of profligacy are over, at least for the time being, are having further bolts applied to the empty stable door whereas those banks most at risk, namely the small new ones, are being encouraged to expose themselves further.

Complain about anything in an NHS hospital and you will face a wall of unknowing. Not sympathy, not a recognition of the mistake and certainly not an apology.  This has nothing to do with a lack of care or humanity by NHS staff and everything to do with the scale of legal costs and fines faced by the NHS.  The sums are now huge (£15bn in 2010 according to the Daily Telegraph, 3rd August) and rising fast, thus draining the funds that should be spent on front line care.

In terms of employment growth, regulation must be the UK’s most successful enterprise.  And we have been attempting to export it worldwide.  The 4,000 strong Financial Services Authority (FSA) has now been divided into two main successors, the Prudential Regulation Authority (PRA), made part of the Bank of England, and Financial Conduct Authority (FCA), and a few minor ones.  Hydra-like we can expect the combined total employment by the new bodies comfortably to exceed that of the FSA.

The Daily Telegraph reported (16th January) that UK taxpayers would likely be called to contribute up to another £30bn. to further bail out RBS and Lloyds TSB.  Their source was the Bank of England’s Financial Policy Committee’s (FPC) evidence to the Treasury Select Committee.  The problem is largely artificial: banking fogeys see the crash as having arisen from inadequate capital to withstand shocks.  They are wrong: more capital may have averted the need for the bailouts but capital shortage did not cause the crash.

The EU Federalists have already written the script for the UK’s new relationship as an “associate member”.  We will be subject to all the regulations and costs of EU membership without any influence or voting rights.  That is roughly the deal Norway currently has.

So is this decision time as we choose between attractive alternatives or derision time as we crawl pathetically back into our hutch?

David Cameron is expected to make his long awaited EU policy speech shortly.  We are told it will be radical and bold. The consequence, we are told again, will be a major renegotiation of our EU terms or departure with our head held high.  That choice will be for the UK to make on the basis of an in/out referendum.

The Parliamentary Commission on Banking has reported this morning and, like most of the talk leading up to and since the Vickers Report, is pre-occupied by ring fencing.  Vickers, as you will recall, dealt with the demands for separating retail and investment banking by proposing that those banking groups involved in both should have separate subsidiaries for those sectors with no links between them.