Andreas Whittam Smith: The PM has more urgent tasks than bank regulation

Displacement activity is the diagnosis I make of the great energy that the Prime Minister, Mr Brown, is putting into getting international agreement for the reform of bank regulation. It must make Mr Brown feel that he is doing something useful, although rewriting these rules will not save one job, will not revive a single enterprise, will not boost economic activity.

Displacement activity is the description given in studies of animal behaviour to actions that are performed while in a state of stress. Birds, for example, often peck at grass when uncertain whether to attack or flee from an opponent. Male stickleback fish stand on their heads and dig into the sand as if building a nest when the impulses of attack and retreat are evenly balanced.

I once sat on a board where the chief executive engaged in displacement activity. He spent most of his time solving technical problems rather than leading the business. He was soon removed.

That is why I shudder when Mr Brown sticks out his chin and resolves to deal with those bankers. He should have done that when he was Chancellor of the Exchequer. He used to promote what was called at the time "light touch" regulation. Now those bankers who were "lightly touched" are sitting at home enjoying their lavish pensions or buying fast cars on their bonuses. Or, if they are still in post, being paid colossal amounts. Mr Brown's light touch was just that. The bankers got away with it.

Regrettable. But place the reform of banking regulation into today's context. The global economy faces its most serious problems since the dislocation caused by the Second World War. It may even be entering a dire period that would rival the Great Depression of the early 1930s.

To confront this situation, there are three types of policy response. One is that governments undertake infrastructure projects that make up for the decline in private sector activity. Another is that central banks cut interest rates and increase the money supply (see the Bank of England's announcement yesterday). And the third is that governments replace the capital lost by banks so that the financial system may work smoothly again.

Compared with these policies, all alike very difficult to carry through effectively, rewriting regulation is a minor matter. Apart from anything else, one can be sure that recent patterns of misbehaviour are not going to be repeated in the foreseeable future. The shock to the system that bankers have experienced will act like an antidote. It will last as long as the memory of the dreadful events of 2007 to 2009 holds a place in institutional memory – which is until the thirty-somethings now working in financial markets go into retirement.

To take an earlier example, the German experience of hyperinflation immediately following the First World War, which wiped out families' savings, visibly marked German attitudes until the 1960s, and the memory lingers on still. Which is not to say that a new system of banking regulation does not have to be devised in due course. It does. But it is a task for junior ministers and officials.

Undertaking displacement activity is not the invariable accompaniment of stress. Nor is it a weakness of character that one would expect Mr Brown to display. Admittedly the pressures are great. Infrastructure projects financed by the state will contribute to lifting the recession only if they are, as the Americans would say, shovel ready. The much talked-about London Cross Rail project, for instance is not. There is also the question of whether the taxpayer can really afford the cost of big projects.

The so-called "quantitative easing" – or printing money – announced by the Bank of England has never been tried before. It is as dangerous as injecting a hospital patient with an untested drug. As to repairing the banks' balance sheets, the experience so far is that the stitches don't hold.

Mr Brown could be forgiven, therefore, for feeling tested as never before. But I suspect that the origins of his displacement activity lie elsewhere. What undercuts his self-confidence as he faces challenges greater than those confronted by his recent predecessors is his low standing in the polls – or to put it another way, in the nation's affections.

He feels our lack of confidence in him. It is the horrible prospect that he will fail to obtain a mandate of his own and thus serve no more than three years that makes him feverishly work away at the stuff he can do, even if it is largely irrelevant to the nation's problems.

a.whittamsmith@independent.co.uk