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We're back to open season on the banks. The regulation is piling up, with more being proposed today by the European Commission.

It's aiming its regulatory fire at boards of directors and at credit ratings agencies, which have done so much to pile pressure on Greece and other Mediterranean debtors.

There's pressure in Washington as well, where mega-investor Warren Buffett is testifying before the Financial Crisis Inquiry Commission on the role of credit ratings agencies.

There's an independent review of Britain's banking to be published next week.

It drives towards the G20 summit later this month, and the intention of the Obama administration to sign off reform legislation within a month.

But there are mixed signals from the new government at Westminster.

With both coalition parties promising, pre-election, either a full break-up of the banks (LibDems) or something rather less drastic (Tory), they've decided to do neither and have a review instead.

Utility banks

It looks like the long grass, but Business Secretary Vince Cable in Edinburgh yesterday has reverted to his party line that a break-up is necessary, however much the review might produce the many difficult implications of such a break-up. The status quo, said Mr Cable, is "dangerous".

More dangerous than breaking up the banks without thinking through the implications?

And where does this leave Scotland and the Scottish banks? If you look at the Scottish government's policy, you'd be lucky to find one.
They're not clear what they want to do with Scotland's banks and bankers.

According to Jim Mather, ministers are refraining from taking a position on the future of banking, instead stating their interests - though he seems to want to see banks taking their place beside energy and water utilities, so that looks like quite a drastic break-up.

Battering the banks

The dilemmas ministers face centre on the prospect of a broken-up Royal Bank of Scotland seeing headquarters power moving swiftly out of the country, probably leaving parts of it vulnerable to takeover, and potentially leaving no Scottish-based banks.

The dilemma - particularly in Britain - is also the choice between battering the banks, demanding public anger is translated into pain for bankers, reducing their past risky behaviour, but at the same time demanding they make loans they wouldn't otherwise make, and that they become profitable, with higher share prices, so that we - with large stakes in RBS and Lloyds - turn a profit on our risky investment.

If the banks are to be broken up, the question is: which way? Along which fault lines?

To break up the banks and somehow build a new, narrow bank out of the wreckage, getting ahead of others and building it up to an international utility operator: that's the trick being suggested at a forum of bankers and MSPs organised by the Scottish Parliament's futures forum today at Holyrood.

One eminent expert in banking suggested, under conditions of anonymity, separating out the personal, business and business advisory role of banks from the trading parts. But he added that he doesn't foresee that being done any time before the next banking crisis. The political appetite for such change has gone.

Another senior figure in Scottish finance made the telling point that to maintain major headquarters power in Scotland will require a pool of talented non-executive directors, with doubts that those skills currently exist in sufficient numbers. RBS, for instance, only has one board member based north of the border - Sir Sandy Crombie.

Scottish duopoly

The main message coming out of the forum is being repeated by MSPs debating the future of banking as I type: the pressure for the Office of Fair Trading to carry out a review of the effective duopoly in Scottish corporate banking in which RBS and Lloyds Banking Group (including Bank of Scotland) control more than 75% of the market.

The OFT last week launched an inquiry into personal banking across the UK - particularly barriers to new banks coming into the market, barriers to expansion and even barriers to exit. It's looking for evidence, and soon, with publication of its findings in autumn.

But that's not seen as enough, both because the UK market has four big players instead of two, and because personal or retail banking appears to be more flexible (or much less of a problem) than business banking.

To be fair to the OFT, it did raise precisely that issue when it had the statutory duty of reporting on the proposed takeover of Halifax Bank of Scotland by Lloyds TSB in November 2008. But in the rush to save HBOS, its advice was ignored, and Lloyds Banking Group was born.