Treasury patches up regulatory system
Our big banks may have played a big role in sparking the recession as a consequence of the losses they've incurred on their reckless lending and investing.
And the Financial Services Authority and Bank of England may have failed miserably to curb the City's dangerous excesses during the boom years.
But the Treasury has opted for correcting the flaws in the existing three-pronged regulatory system created in 1997 by Gordon Brown - rather than doing what the Tories want, which is to dismantle the so-called tripartite approach and confer the important powers to prevent bank crises on the Bank of England.
Also, the Treasury's 140-page paper on reforming financial regulation - to be published at last, many weeks after initial deadlines - will say that our big complex banks can be made safe by an FSA which forces them to hold substantially more capital and cash as a protection against losses and runs.
The Treasury will reject demands to break up the likes of Royal Bank of Scotland and Barclays, or to hive off what the governor of the Bank of England calls their casino operations from their state-insured retail arms, the parts that look after our precious savings.
But it will urge the FSA to make good on its promise to penalise banks that give big bonuses to executives that take dangerous risks.
It won't all be patching, re-seaming and darning. There'll be a proposal to give the Bank of England increased formal responsibility for assessing whether financial markets are overheating in a dangerous way, but the decision on how to curb banks in general from lending too much - as and when they're doing so again (if only) - well that's being postponed pending the outcome of international negotiations.
As I said in my note on Monday, everyone seems to agree that the globalised financial economy would be safe to swim in again if only we had lifeguards with macro-prudential tools to curb systemic financial risk, but no two geniuses can agree which tools are best.
Anyway it's clear that the Treasury would want the Bank of England to do macro-prudential policy, as and when the Treasury has worked out precisely what macro-prudential policy might be.
UPDATE, 07:19, 8 July: By the way, I'm very uncertain about whether the governor of the Bank of England will think he's getting the powers he needs from the Treasury.
It's pretty clear, to use his analogy, that the Bank of England's future sermons will have more teeth than hitherto - they'll be more like a papal encyclical than a gentle Sunday morning morality tale.
But whether Mervyn King will still feel he needs more direct powers to intervene in the affairs of banks, well we'll just have to wait for his reaction.
If you're in the mood for reading about how the capitalist system is unjust and needs radical reform, that's where you should look - rather than in a Treasury paper written by a Labour government.