Paul Volcker, Sir John Vickers and Erkki Liikanen, the three economists tasked with devising the future shape of the banking industry, can all agree on at least one thing: universal banks should have no place in the risk-free utopia to which they all strive.
But to Allen & Overy's Philip Wood therein lies their first - and biggest - mistake.
"Vickers, Volcker and Liikanen; they are all wrong," he says. "What they are suggesting is out of touch with reality."
"Too big to fail is part of the system - to close it down is the wrong solution." he says. "They are suggesting we effectively shut down the system just to support the depositors as against the people who really finance the banks - the senior bondholders. It's not right."
He believes policy makers should not go down the line of ring fencing. To do so would deprive the market of essential methods of investment, and thereby curb markets quite unnecessarily. "I just can't believe that a whole society would shoot themselves in the foot to that extent," he says.
"I don't believe ring fencing will make the slightest difference to the failure of banks," he says. "Banks don't fail because people form queues in the street, they fail in the wholesale market first."
The cost to the real economy
Linklaters' managing partner Simon Davies believes there is a lack of reality at the moment regarding the consequential impact on the real economy of the proposed regulatory changes.
"There is obviously going to be significantly higher regulatory burdens on the banks going forward and it's not going to be cost-free for the real economy either," he says.
Bankers have already seen significant change in terms of pressure on bonuses and staff reduction. And Davies believes that is likely to continue.
The shareholders – that is, pension funds and institutional investors - are looking at reduced returns from the banking sector. What's more, reduced returns to institutional investors and pension funds will also have a negative impact on anyone who's invested in those entities, which has a wider impact on the economy.
"Ultimately, the regulatory changes are going to give rise to increased costs of credit and that will need to be passed on so again will have an impact on almost everybody," he says.
In this climate, the real economy will need alternative credit providers, he says.
"I think alternative credit providers pose a much lower systemic risk given their relative scale," he says. "What's more, it's quite a fragmented sector. It needs to be given an opportunity to take up some of the slack that's going to arise from a tightening inside the banking sector."
"The effect of the reforms proposed will be, as I understand it, to shrink EU bank assets by £2 to 3 trillion," he says. "That's a significant impact on bank assets."
With that in mind, Davies believes we're faced with three choices: either there's no reform; the proposed reforms are introduced leading to a shrinkage of assets; or, alternatively, reforms are implemented that somehow avoid the violence this shrinkage will have on the real economy.
Backward populism?
To Wood, the current proposals for reform make clear there is what he considers to be a quite incredible misunderstanding of the cause of the last financial crisis.
"All of these things people are complaining about did not cause the last financial crisis," he says. "All of this stuff about complicated instruments and bankers outfoxing themselves with their exotic products is rubbish."
"The law must be above all of this backward populism," he says. "It should not be used as another form of restriction on people's conducts unless there is an absolutely proven test."
The full article is available from International Financial Law Review.