The report was frank in arguing that serious regulatory failure contributed to the failings in banking standards. “The misjudgement of the risks in the pre-crisis period was reinforced by a regulatory approach focussed on detailed rules and process which all but guaranteed that the big risks would be missed.” “Regulators need to resist the temptation to retreat into a comfort zone of setting complex rules and measuring compliance. They need to avoid placing too much reliance on complex models rather than examing actual risk exposures.”Specifically, the most senior regulatory staff should be expected to use judgement, rather than relying on procedures, and to take direct personal responsibility for ensuring that they engage with the banks and the board to secure the information required to assess risks. The regulators would be accountable to Parliament on their responsibilities.

It is interesting that the report casted doubt whether the creation of a professional institute of bankers to self-regulate themselves would be sufficient. Furthermore, the Report rejected the idea that setting higher banking standards would be against the UK's competitiveness. Bluntly, the report argued that the commonly-heard argument that forcing banks to raise capital will hurt lending is false.

In a swipe against the EU regulations, the Report suggested that “the prescriptive and box-ticking tendency of EU rules designed for 27 members will impede the move towards the more judgement-approach being introduced in the UK.”

The significance of this Report, made by law-makers even as the new banking legislation is being passed, is critical to the future development of banking not just in the UK, but also world wide. As the leading international financial centre, London has to set the benchmark for global banking standards. This report has helped to clarify many issues of not just principles, but also the difficult trade-offs between more rules or more judgement.

The real problem is that banking is, as outgoing Bank of England Governor Mervyn King said so eloquently, global in life, but national in death. That means that the interactive, interconnected forces of competition, technology, innovation and consumer ignorance of new financial complexity make unacceptable behaviour systemic in nature. The traditional lines of defence against “reckless behaviour” failed at almost all levels at the management, board, audit and regulatory levels, aswell supposedly independent credit rating agencies and informed analysts.

Where do you put final responsibility for this recurring crisis? There was flawed bank behaviour, flawed supervision and also flawed monetary policies based on flawed economic theories. There are no simple answers.

This report is a landmark study and compulsory reading for bankers, regulators and law-makers globally because it accepted a fundamental view that the existing common law approach of sanctions was found wanting in addressing system failure. But is more legislation the solution to system failure?

So far, the rush for more rules and more legislation is definitely good for lawyers. Whether it is good for all remains to be seen.