Can banks cure their social leprosy?

BBC business editor Robert Peston on the route to rehabilitation

If anything, the creation of the coalition government has made life even more unpleasant for Britain's banks and bankers - as Mark Hoban, the Treasury minister, made clear in his speech last night to the annual dinner of the British Bankers Association.

He confirmed that the government is actively looking at the introduction of a tax on financial activities and would examine the costs and benefits of a separate tax on profits and remuneration.

And remember these taxes would be in addition to the bank tax introduced in the Budget on money that banks borrow which is intended to raise £2.5bn a year.

What's more, Mr Hoban said that pressure would be kept up on bankers not to pay themselves excessive amounts for taking dangerous risks, by asking the City watchdog the FSA to examine what he called "further options" on all this.

All of which, in a way, underlines today's message in the Times from Stephen Hester, the chief executive of Royal Bank of Scotland, to his fellow bankers - which is that if the banks and bankers don't somehow improve their public reputation, they'll have policies foisted on them that they really don't like.

The resonant phrase he used is that "we have to earn the right to be heard".

And by the way, that right of audience hasn't exactly been bolstered by the FSA's damning critique of how banks provide mortgages: the soon-to-be put down watchdog is introducing tough new restrictions on the provision of mortgages, based on its findings that almost half of new mortgages between 2007 and March this year were provided without a bank demanding verification of a borrower's income.

Some may see the FSA's report as equally damning of consumers, in that they are characterised as systematically borrowing more than they can afford. Many consumers "count on future house price rises or uncertain life events to repay their mortgage and some have no plan at all", it says.

Which is all very embarrassing for the great British home-owner. But the implication is that banks are the equivalent of drug dealers, feeding the borrowing habit of feckless individuals - so the FSA is stepping in to "ensure all lenders get back to the basics of responsible lending".

So how can banks transform themselves from social lepers to pillars of the community? Well Mr Hester wasn't specific - perhaps because he doesn't want to give away valuable commercial secrets to his rivals or possibly because this is easier said than done.

The closest he came to a specific policy was that banks must never again lend so much to commercial property (in the last years of the boom, 74% of all business loans went to property, he said).

And then there was a reflection from Mr Hester that might have been aimed at taxpayers or possibly at ministers, which is that surely they wouldn't be so down on investment banking if they only knew how banks help "our country to finance its deficit and protect public services" through direct purchases of gilts and by "helping sovereign debt markets function efficiently".

Hmmm. This is treacherous territory for Mr Hester.

If the Chancellor, George Osborne, saw it as more than a statement of the bloomin' obvious and as a veiled threat, well he might be marginally less bothered if the review of the structure of banks that he's commissioned were to recommend that banks should be cut down to size, by separating retail and investment banking.

You can keep up with the latest from business editor Robert Peston by visiting his blog on the BBC News website.

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