So the watchdog can bark after all. Adair Turner, chairman of Britain's Financial Services Authority, says the financial sector has "swollen beyond its socially useful size". That is a striking statement for any financial regulator, particularly one that counts promoting London's financial centre as one of its goals. Identifying the problem, however, is the easy bit. Reversing decades of financial expansion will require global agreement on tough new rules, and the determination to make sure they are consistently enforced.

Turner's comments, in a debate hosted by Prospect magazine, underscore the extent to which the crisis has upended the received wisdom among policymakers. For years they assumed markets were self-correcting, that financial innovation brought lasting economic benefits, and that regulators should think twice before getting in the way.

But after two years of global economic turmoil and with several trillion dollars of public money committed to preventing further panic, the costs of this approach have become all too clear.

What is less certain is what should come in its place. A market economy needs functioning banks and financial markets to intermediate capital flows and allocate credit. This useful activity will involve some useless speculation: it is hard to imagine a regulator -- or anyone else -- reliably drawing a line between the two.

The authorities can, however, make sure that banks take greater account of the possible costs of their risk-taking. Turner thinks forcing banks, particularly those involved in trading activities, to hold greater reserves of capital will choke off some "socially useless" activity. Such changes are already under way. They will have the added benefit of reducing banks' profits and -- by implication -- the outsized bonuses they distribute to employees.

Governments can also do more to protect taxpayers from future financial failures. Banks could be required to prepare for their own failure by drawing up what Mervyn King, governor of the Bank of England, memorably described as a "living will". Alternatively, systemically important institutions could be charged an explicit fee for the state guarantee they enjoy.

Turner also floats the idea of introducing a Tobin tax -- a levy on financial transactions -- named after the economist who in the 1970s proposed taxing cross-border currency transactions. However, this would not distinguish between "useful" and "useless" transactions. It is also hard to imagine a global tax that could not be avoided somehow.

Turner is right to launch a debate. His comments will also help counter accusations that financial regulators have been captured by the industry they are supposed to police. But the reforms he has proposed cannot be imposed unilaterally by any one country -- let alone by a regulator that may not exist in its current form a year from now. Shrinking the financial sector will require a global agreement every bit as robust as the intellectual consensus that allowed it to swell up in the first place.

-- Margaret Doyle is a Reuters columnist. The opinions expressed are her own --

Abracadabra! Yet again, Barclays has pulled another rabbit out of its hat. With just days to go before the end-March deadline for the bank to apply for a government guarantee of its dodgier loans, it may again wriggle out of state control.

The Financial Services Authority (FSA) has concluded, after performing "stress tests" on its loan book, that the bank has enough capital. Barclays (BARC.L) has persuaded the authorities and investors (shares are trading at over three times their January low) -- of its soundness.

But it should still buy a government guarantee. Thanks to the FSA's clean bill of health, it can bargain for keener fees than RBS (RBS.L) and Lloyds (LLOY.L). If it does join the scheme, Barclays is likely to present a smaller and more toxic book than the two state supplicants.

Moreover, Barclays is in the happy position of being able to pay cash for the insurance -- and cash buyers pay less. That is thanks to the mooted 4.5 billion pound share of its iShares exchange-traded funds business. This is a stroke of luck.

Management were so keen to avoid having Her Majesty's Government (HMG) on the share register that they raised capital more expensively from Gulf governments last October. Having seen what happened to Asian and other Gulf investors who bought into American banks, the Arabs cleverly inserted an anti-dilution clause when they invested 7 billion pounds.

That means that Barclays is effectively precluded from issuing shares below 153 pence (which any non-government new equity would probably be) unless it wants to risk handing control to them. Of course, Barclays could try to avoid the government scheme altogether.

After all, at 4.5 billion pounds, the iShares sale would boost its tier 1 capital to a respectable 7.7 percent, not so far behind HSBC's post-rights issue 8.5 percent. And its investment banking subsidiary, BarCap, seems to have enjoyed a storming first quarter.

Citigroup estimates that the whole bank will generate a respectable combined pre-provision, pre-tax 19 billion pounds this year and next. Barclays is planning to resume dividends in the second half but even so, this should add a few points to its capital. Moreover, Barclays claims to have a much cleaner loan book than RBS or Lloyds.

If that's true, Barclays could in theory sidestep the insurance scheme altogether. Assuming it wanted to end up with a tier one equity ratio of 4 percent, the FSA minimum, it has the scope to write off around 40 billion pounds over the next three years without any further capital injections. To put that in perspective, RBS is thought likely to have to write down 60-70 billion pounds (11 percent of loan assets).

That said, rejecting the government guarantee altogether might demanded too much Voodoo faith even for Barclays poker-faced management team. The bank had 45 billion pounds of "level-3" assets (whose valuations are unobservable) on its balance sheet (or more than 10 percent of risk-weighted assets) at the end of 2008. True, it also had 21 billion pounds in insurance contracts covering possible defaults in its collateralised loan obligation portfolio within that sum.

But the "monoline" insurers on the other side of that trade are hardly rock-solid entities. Both Ambac and MBIA are on negative watch with the ratings agencies. Instead, Barclays should take some insurance from one of the few counterparties that won't go under: HMG. Shareholders have had enough magic for the time being, thank you.

- Margaret Doyle has an interest in Barclays shares -

The Financial Services Authority (FSA) has published a blueprint for a shake-up of global banking regulations aimed at preventing a repeat of the current financial crisis. The report, authored by FSA Chairman Adair Turner, recommends an increase in banks’ minimum capital requirements, closer regulation of hedge funds as well as proposals to stop banks lending too much during boom years and measures to restrict the ability of banks to take excessive risks.

The report comes a week after FSA Chief Executive Hector Sants said in a speech at Thomson Reuters London offices that the banking sector should be “very frightened” of the regulator.

Here is a quick round-up of how the FSA’s blueprint has been received across the web.

Robert Peston, the BBC’s Business Editor, writes on his blog that much of what the FSA Chairman said was “common sense” and that “some of its gleaming new rules would in fact represent a return to a framework for limiting risk-taking by banks that prevailed until comparatively recently.”

There was also a good discussion about the FSA and international banking regulation on this morning’s Today programme on BBC4, which you can listen to here if you missed it.

Over on the Telegraph, meanwhile, Simon Denham comments that: “The new “aggressive” stance from the FSA is a legitimate reaction to the howls of outrage - some justified and others totally misplaced - about the moral and managerial turpitude within the City.

“But it remains to be seen how this will translate into action. The worst case scenario would be for regulation to become unduly cumbersome, slow the mechanisms of the City and hinder any wider recovery for the economy. That said… Lord Turner’s report is a golden opportunity for the regulator to really get behind financial services.”

Lord Turner also announced that potential homeowners may need to put down at least a 15 percent deposit to secure a mortgage. Richard Mason, Managing Director at Moneyextra.com, however, told Times Online that: “Putting a cap on mortgage lending is simply a case of shutting the stable door after the horse has bolted. This action is futile and detrimental to those that need help the most - first time buyers.

“Lenders should not allow the Government to dictate their lending criteria. Rather, the FSA should focus on challenging lenders to ensure they are operating comfortably within a stable and predictable property market.”

Lorna Bourke on Citywire.co.uk says that mortgage controls would be have “disastrous long term consequences for the housing market and is just plain wrong. “The amount borrowed by a homebuyer is just one factor in determining the person’s ability to meet repayments. The level of interest rates is equally important and their credit track record and other financial commitments are all factors to be taken into account.”

Patrick Collinson of The Guardian, on the other hand, says that a cap on income multiples is correct, but does not go far enough. “Can someone explain what societal damage will be incurred if someone is prevented from taking a home loan worth five times their income? The FSA should also consider imposing tight controls on how couples, married or not, are assessed for borrowing.”

Managementtoday.co.uk asks if the measures outlined by Lord Turner might actually do more harm than good. “Lots of people are sceptical that it will have enough knowledge and expertise to spot the danger in time, even if it gets the extra powers of intervention Turner wants.

“Turner has also called for a pan-European regulator, to try and keep an eye on the industry at a regional level. And therein lies a big problem with all this: if the regime becomes a lot stricter in the UK, but not anywhere else, the big banks will just leave London and go somewhere else that gives them an easier ride.

“Hence why some City folk are worried that all Turner’s reforms will do is reduce London’s competitiveness as a financial centre – which is likely to make the UK’s economic recovery even slower.”

Now it is over to you. What do you think of the FSA’s plans for financial reforms put forward by Lord Turner today?

Britain’s largest banks and the Office of Fair Trading remain locked in a case management hearing in court over the thorny issue of current account default charges, but the judge has already indicated that the banks will be given the green light to appeal the ruling against them. The appeal — on at least part of Mr Justice Andrew Smith’s ruling, which relates to “fairness” and the rights of customers to sue banks — is a hammer-blow to scores of consumers whose claims for compensation have been put on hold while the matter trundles through the courts.

The issue could now go to the Appeal Court and the House of Lords before the full case goes to court — and that could take two years or more. In the meantime, the Financial Services Authority has put on hold customer complaints and court cases relating to the charges, putting the brakes on any compensation payments. And, as the legal process rumbles on, the banks continue to rake in vast sums of money by hitting consumers who go over their overdraft limit or write a cheque that bounces with exorbitant charges. Analysts have estimated that that banks make up to 3.5 billion pounds in overdraft charges every year: by delaying the case, they could amass some 7 billion pounds.

Time, it seems, is money. But despite the ban on compensation payments, those who believe they have been hit with “unfair” bank charges should not delay. Customers can’t stop the banks from appealing – but they can stop the clock from counting down the time allowed to submit their claims.

Currently, bank customers can reclaim “unfair” charges plus interest from the past six years — as far back you can go in the courts. Submitting your claim as soon as possible might not mean you’ll get any subsequent rebate sooner, but it will stop the clock from ticking on how far back the claim can stretch.

“Anyone who plans to appeal should write to their bank to ask for the charges to be refunded,” advises David Kuo, head of personal finance at Fool.co.uk. “Follow up with a letter threatening court proceedings. Many courts will probably stay the majority of claims, but at least the six-year limitation on your claim will be halted too.

“Banks know that time is money, which is why they are appealing — they want to hang on to your money for as long as possible. But bank customers can get their own back. Submit your claims without delay so you can get your refund in full when banks run out of time — and options.”