Hamish McRae: It's now back to Victorian values

The 19th century constructed not just a regulatory financial code but a moral one

So, Bernard Madoff joins such fictional baddies as Anthony Trollope's Augustus Melmotte and Charles Dickens's Mr Merdle as the classic swindler – the man who rises from modest or mysterious background to become a pillar of society and is fawned upon by all for his apparent financial acumen, until it all explodes and his fraud is revealed. We had our own real-life version in Robert Maxwell but trust Wall Street to do it bigger and better, for this one may turn out to be the greatest fraud of all time.

But what does it mean? There are mechanical consequences as the failures of the regulatory and accounting systems are examined and reformed. There are, of course, the losses accrued by individuals, financial institutions and charities and the consequences of that. But Trollope would not have written The Way We Live Now or Dickens Little Dorrit had the swindler not been a common figure in Victorian life.

In response, Victorian society constructed not just a regulatory code to contain financial excess but also a social and moral one. It seems to me that the societal implications of the financial failures of the past 18 months will be more important than regulatory ones. We won't just be regulated differently, we will behave differently. And while Bernard Madoff operated principally in the US (though there has been collateral damage in Britain and Europe), it is the nature of finance that changes in attitudes there will wash around the world and affect us here.

In any case, the societal changes will not just be the result of a loss of faith in Mr Madoff; there is a much wider questioning of the competence of many financial leaders and even of their honesty. David Cameron, ever one to sniff the scent in the wind, has come out calling for heads to roll – a "day of reckoning" for the banking industry. But more interesting will be what happens once that day is past, for it surely won't be back to business as usual.

There are two possible paths forward. One is that the state will play a much bigger role, not just as a regulator but as a practitioner. In the short term that is inevitable. It has happened. To varying degrees around the world, governments have bought up the banks and other financial institutions. They are being urged to do more, for example with a call by Jim O'Neill, the highly-respected head of research at Goldman Sachs, for the government to consider setting up a state-owned bank to lend money to industry. I would be surprised if there were not more pressure for our Government to lend directly to householders.

The argument here is that the financial services industry has failed and therefore it is the duty of the state to step in. Many people, particularly those that have an ideological belief in greater state intervention, will find this path attractive. The problem with it is that the state here and elsewhere already has the means to lend more. It owns Northern Rock outright and there is no reason why it should not use it to increase the flow of home loans. In the case of commercial credit, the Royal Bank group is the largest business banker in Britain and the Government controls more than two-thirds of its stock. It has the power to ram anything though, if necessary buying up the minority shareholding.

So, the Government has the means to be a much larger force in banking but it is reluctant to use its powers. Instead, it is taking the other path forward, which is to provide capital to the banking system and use the authority that gives to nudge (or bully) the banks into doing what it wants them to. What it cannot do is to tell banks to lend to customers that they think are not credit-worthy.

So I think that while governments will inevitably play a larger role in finance for the next few years, they will divest themselves of that role as soon as they decently can. It is not in politicians' self-interest to be blamed every time a medium-sized company has its overdraft limit cut, any more than it is in their self-interest to have to cope with problems at the Post Office. Instead, they will use a combination of regulation and moral persuasion to get the banks to behave in a way that is acceptable to the electorate. But they did that before, so to some extent this will be back to business as normal.

The more lasting change will be in the relationship between finance and society more generally. People don't now trust banks or other financial institutions. It is harsh to say it but winning back that trust will take a decade, maybe longer, and as a result the whole financial services industry will be different. It will become more conservative, more transparent, less innovative. On the one hand, people will not buy financial products they do not understand. On the other, financial institutions will not take risks with their clients' money. The inevitable result will be a world where access to credit becomes more limited. It will be a world of slower, but maybe more sustainable, growth. Alongside these institutional changes will be social ones. It is harder to see this in any detail, but I would have thought that some of the aspects of late Victorian times will become more evident. One will be the return of thrift. Not only will people find it harder to obtain credit – they won't want to. There will be more self-help and less conspicuous consumption. Companies will become more risk-averse, with large ones relying on cashflow to finance growth and smaller ones looking to families and friends rather than financial institutions.

The biggest puzzle will be the changes that voters ask of government. Government is seen now as the saviour and in a way it is – on both sides of the Atlantic. But as the costs of these rescues come home, I think this new responsibility will be reflected in different demands: most obviously that they should be more cautious with taxpayers' money. One reaction of Victorian society to financial excess was to demand the reverse from the Treasury. As William Gladstone put it: "No Chancellor is worth his salt who is not prepared to save what are meant by candle-ends and cheese-parings in the cause of his country."

Well, we are not quite there yet, but as the aversion to personal excess grows, expect the aversion to public excess to follow. It is a day of reckoning for the banks now – a day of reckoning for national treasuries later.