This analysis was orginally prepared for our funders Andrew Wainwright Reform Trust in November 2008

Some might use the metaphor of a ‘train wreck’ for what has happened to the banking system. And in the UK it is an instructive aspect of this metaphor is to recall how in investigating a train wreck, looking at where the wreckage ends up - and how it ends up - is a huge part of coming to understand what happened.

About 20 years ago, UK banking was still dominated by a 'big four' of banks all run from what was called the 'city' based on a small part of central London.

By 2005, Scotland and North East of England had risen in importance to become major forces in British banking and great champions of their native parts.

By late 2008, the wreckage of the banking crisis of October, is disproportionately to be found scattered in Scotland and northern England.

With the exception of the Co-op Bank (based in Manchester), all the regional financial great champions have ended up surrendering themselves to state ownership. The banking champions of Edinburgh, Newcastle and Yorkshire are now part of state-owned entities of unknown prospects.

While Iceland has been a unique disaster, it is important to recognise that in no other major country have banks of such importance as RBS, NatWest, HBOS and Lloyds TSB had to throw in the towel.

By contrast, it is the Wall Street banks based in New York and who are members of the New York District Federal Reseve Bank that ended up in the most trouble in the USA.

The US has hundreds of smaller regional banks who are members of the other District Feds and who are Americans' local banks. These banks were on the whole less shaken by the crisis. The US Treasury had to take shareholdings in a number of Wall Street banks, but now all except Citigroup and Wells Fargo have bought themselves back off the US Treasury. The main French banks have also bought themselves back from the state. Only one private German bank had to take a state-shareholding.

But stark contrast in the UK it is far from clear that the taxpayer will not have to make yet further injections into the main banking groups.

That Barclays and HSBC (‘the World’s Local Bank’) have been the only major ‘British’ banks that did not have to throw themselves on the taxpayer, underlines the particularly British nature of the disaster that has yet to sink in with the British people and their politicians.

The question arises as to how most of the British banks were let thunder on with so little capital?

For example, Peter Montellier, deputy editor of the North East's regional morning newspaper The Journal, has questioned the quality of scrutiny applied to Northern Rock (external link to BBC).

There are a couple of possible reasons, both of which indicate the relevance of the decentralisation of the Bank of England.

Either the ‘out of town’ banks were not being properly scrutinised because they were less accessible than the more London-based banks.

Or maybe political sensitivity, rather than proximity, led to an excessively ‘light touch’ towards regional and ‘Scots’ champions that had specific political-geographic constituencies around them. ( Some of this can be seen in the campaign to save an 'independent HBOS.)

As the UK financial sector struggles out of the wreckage, there is now clearly a case for better regulation, but unless what crawls out are just London-based creatures, the regulators must speak with the relevant local accent and local legitimacy based on local representation.

This would now be a crucial edge to the argument for a reform, and would be an edge that we had not anticipated when we first picked up the idea of reform initially as a way of underpinning a more inclusive and proportionate UK monetary policy.

Andrew Lydon