In the good times, the strength of the City of London, and in particular the banking sector, was seen as a positive.

Now, with the UK still, according to recent official statistics, mired in recession and negative growth, many fear that banking problems are holding the UK back.

Since the collapse of Northern Rock and the near-collapse of several other banks, there has been a debate in the UK over how stricken banks should be treated and what their future role should be?

The government has pumped billions of pounds into helping the banks and the wider economy that relies on bank credit, but there are signs that banks would rather invest in market assets that could rise in value than in businesses they regard as risky.

Hence a rapid recovery in the stock market, while underlying economic activity remains weak.

From a political point of view, the banks have also appeared unrepentant, with news of mega-bonuses to be paid out to some bankers, while unemployment rises.

In narrow performance terms, some may seek to justify these rewards, but they are at odds with a need for self-restraint and sobriety until the banking and finance system is completely repaired.

One key area for debate is how to deal with the ‘too big to fail’ problem.

Some think banks should be split into ‘utility banks’, providing essential services, which offer a limited range of low-risk activities in return for government support, and ‘casino banks’, that can indulge in more risky activities on the understanding that they do so at their own risk.

This split can be seen as modern version of the old US Glass-Steagall Act, which separated commercial banking from retail banking. Its repeal in the late eighties is now seen as a key step on the way to the recent global financial crisis.

But others, including many in government, think this type of division is unrealistic nowadays.

And given the interconnectedness of banks and the power of the shadow banking system, letting any bank go could easily have wider implications.

FSA chairman Adair Turner recently said there was “no silver bullet” to address the ‘too big to fail’ challenge, but also said capital requirements, rather than legislation, could effect a new Glass-Steagall Act.

UK banking could also be further shaken up by European regulator calls for two new high street banks to be set up, in order to provide competition.

The regulators want banks rescued with state aid to be scaled down and this process is already underway, with a number of subsidiary businesses, particularly in household and motor insurance, about to be put up for sale.

Perhaps European intervention can help properly reform the UK banking sector.

After all, the UK’s politicians showed little sign of standing up to the banks in the past and appear to have little idea of what their future role should be.

If the UK continues to lag its European rivals in recovering from recession, then perhaps their suggestions for bringing the banks back into line will become more widely listened to.