At every City lunch table, the conversation is the same. Risk was mispriced. Borrowers were accommodated who should not have been. There needs to be a pause for digestion and reflection. Lending and proprietory trading rules must be rethought. Rewards will be diminished this year. A few unlucky souls will lose their jobs.

But, fundamentally, say most bankers, nothing is broken. The astonishing gravy train that is 21st-century investment banking has not been derailed, it is merely parked, temporarily, in the sidings. The carriages may need to be slightly reconfigured, but there is nothing to stop the onward journey.

As Chuck Prince, chairman and chief executive of Citigroup, put it this week, much of the red ink was due to an “aberration” in financial markets rather than anything more sinister. Normal service – both on Wall Street and in the City of London – will be resumed shortly.

This, they argue, will be a relatively shortlived setback. They point to the 1987 stock market crash as a parallel. It was bloody and scary at the time, but proved to be nothing more than a fleeting reversal in a relentless upward path of growth and rewards for the securities industry.

Investment bankers are too energetic, too creative and too versatile to allow even something as central as paralysis in the credit markets to cause long-term pain. Where once the emphasis was on mergers and acquisitions, now there will be more scope for restructurings and rescues. Where once hedge fund managers were fêted for their lucrative prime brokerage business, now pension funds will be wooed, as banks chase pension “buyouts” – regarded by some as the next big thing. Globalisation and rising wealth levels will continue to create new opportunities. In that sense, bankers are right to be sanguine. But there are reasons why the downturn may prove deeper than anyone just yet is prepared to countenance.

First, the splurge of cheap, plentiful debt of the past 15 years has been unprecedented. Individuals, firms and whole industries have predicated their behaviour on the hosepipe remaining turned on. Is it really credible that the adjustment to a world of scarcer, costlier debt can be achieved without much more pain?

Secondly, the losers do not know that they are losers, even now. The complexity of the debt securitisation and credit derivatives markets means that the casualties – both the banks and their investment clients – are, in many cases, unaware of the scale of their losses. It is when banks start successfully selling on these unloved assets that we will know that equilibrium prices have been reached.

The bonus system gives banks tremendous resilience in tough times. Costs can be slashed instantly. But if not carefully managed, it can also help to foster delusion. There is tremendous incentive for everyone from the chief executive down to believe the best when millions in personal rewards are at stake. After the best first half ever, there has to be a temptation to value positions and assets generously to prevent a half-earned bonus evaporating.

Those who see shrinking City bonuses as a symptom of the present setback may be missing the point. It is the very nature of the bonus system that may end up prolonging the agony.

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