Sean O'Grady: If only our banks would back some risky ventures...

Tighter regulation of the banks would mean lower economic growth. A financial system that was rendered purely "utility" – like an old-fashioned building society – would mean fewer dragons in the den for start-ups to turn to. A risk-averse financial system will necessarily put less money into riskier ventures. And, as everyone knows, high risk means high returns and high growth. Not always, but often enough to make a difference.

From the railway mania of the 19th century to the dot.com bubble of a decade ago, great technological leaps have needed lavish funding by risk-hungry institutions. "Animal spirits" as Keynes called them, need fuel: but how can we preserve that energy while protecting the taxpayer?

No one has yet found a workable way to do it, so perhaps we in the West will have to live with a less vital economy and lower growth, simply because we cannot afford – literally – another banking crash.

Ironically, the problem in Britain over the last few decades is that so much of the explosion in credit hasn't been for people in small and medium-sized businesses seeking to expand or bring new inventions to market. Nor were the banks all that accommodating to larger companies. Instead, the vast bulk of bank lending – by domestic and foreign institutions – was in the form of mortgages on residential and commercial premises, and the purchase of mortgage backed securities. All that did was pay for a house price spiral, and an arbitrary redistribution of wealth from the young to the old. Plus a slump. At the end of it all there was a pitifully small addition to the housing stock. By contrast, UK manufacturing was starved of funds; it is now close to being a net lender to the banks.

The problem has been not that Britain's banks took too many risks, but that the risks they took were so economically futile. What rules could prevent them doing that again?