Big has until recently been beautiful in banking. Big banks can raise capital more cheaply, they can diversify more by product and geography, they can harness all the ordinary benefits of scale, such as cheaper buying and the spreading of overheads more thinly. And they are better able to meet the needs of their biggest corporate customers. Large global companies require large global banks, it has been argued, not always very convincingly.

The evidence suggests the benefits of scale are in fact relatively modest over a certain size. And the hint by the FSA’s Lord Turner that the world’s biggest banks could be forced to hold 2 or 3 percentage points of extra capital, may change the sums significantly. Proportionately that looks like a serious disadvantage, even if minimum capital levels are raised for all banks.

Regulators and politicians seem likely to stop short of forcibly dismantling the biggest banks. In answer to the criticism that some banks are too big to be allowed to fail, the regulators are proposing to reduce the chances of their failing by fattening up their capital cushions.

But all this raises the very tricky problem of how size and systemic importance are to be measured. A small bank in America is a large one in Iceland. Systemic importance is even harder to define. It will need fine judgment and diplomacy at the Basle Committee to devise a formula everyone thinks fair. And, critically, it will need the backing of the Americans, who seem to have rather less interest in the idea.

Already regulators are starting to talk about “transition arrangements” to give banks more of a breathing space to adjust to the tougher new capital regime.

That may well be necessary to prevent the reforms triggering a loans famine. But it will make it all the harder to introduce the necessary tougher rules in due course. With every passing month, memories are fading, bank lobbyists are getting stronger and the odds on serious reform are lengthening.

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