The bad news from Dubai could, according to various commentators, be the trigger for a double-dip recession or the start of an emerging market credit crunch.

The six month halt to debt repayments called by state-owned Dubai World also shows again the nature of the relationship between governments and banks. This subject was explored in a fascinating recent paper from the Bank of England, Banking on the State.

In the past, banks were set up to finance the state, often in times of war. In fact, the Bank of England was originally set up to finance the war debts of William III. As a result sovereign default was the main cause of banking collapses through the Middle Ages and banks charged more interest on war loans to governments than on normal commercial debt.

Now the situation is reversed and the state, particularly in the UK and the US, is the lender of the last resort to the banks. Indeed, the banks shamelessly used this fact to engage in ever more risky activities in order to boost their profits and bonuses in the run-up to the events of late 2008.

The consequence of this in the UK is a massive government deficit, which will take many years to repay. State intervention to the banks in the current crisis, in the UK, US and Eurozone, has totalled $14 trillion, or almost a quarter of global GDP, according to the Bank of England.

As the paper says, the biggest risk to the state’s finances now comes from the banks and default insurance on some G7 governments is more than for McDonalds.

There are several implications arising from this state of affairs. One is public revulsion at the banks’ indecent haste to reward their staff with bonuses, just a year after the great bailout.

In the US, politicians now accept that the public would not tolerate another bank bailout, should one be necessary, and the same is probably true elsewhere. And it is certain that governments, regulators and central bankers are working on ways to prevent banks gaming the system, with privatised profits and socialised losses, in the future.

The Bank of England’s paper suggests a number of measures to reduce risk-taking incentives at banks, such as leverage limits, recalibrating risk weights for high-risk and off-balance-sheet-transactions and rethinking the capital structures of banks.

Another issue is the structure of the banking industry, with the dominance of a few large players; in 2008, the five largest global banks had 16% of global banking assets, double the amount they controlled a decade earlier.

It will take time to see if banking reforms can reverse the trend whereby the state now supports the banking system.

In Banking on the State, the authors conclude that reforms every bit as radical as those following the Great Depression are required and say that it is an open question whether reform efforts to date can bring about that change of direction.

займы на карту без отказа займ 500 рублей на картузайм без документовзайм на банковскую карту онлайн