Business View: The banking industry has only itself to blame

I have to confess that I was amazed by last week's scenes of thousands of savers queuing up to close accounts at Northern Rock. There was never any danger that the bank would become insolvent and no danger that anyone would lose their money. But despite assurances from all quarters, the customers of Northern Rock took a very different view. Which led me to ask the question, why were the combined efforts of the Chancellor, the Prime Minister, the Governor of the Bank of England, the chief executive of Northern Rock and the head of the British Bankers' Association not enough to offer any reassurance?

I think the answer must be that the Great British Public, in their infinite wisdom, simply do not trust figures in authority when it comes to their finances. The memory of the collapse of Equitable Life and the string of broken promises that trailed in its wake must have had something to do with it. There are other instances still fresh in the minds of consumers, not least the split-capital disaster that led to so many small savers losing out. In fact, every so often an unforeseen financial blunder comes along that hurts the little guy much more in relative terms that it does giant financial institutions. It shows that no regulatory system can be foolproof and serves as an extreme example of the age-old truth that shares can go down as well as up.

But I also believe that the banking industry has only itself to blame for consumers' lack of trust. Banking customers in the UK are treated fairly shabbily by an industry that makes billions of pounds a year at their expense. Obscene penalty charges when we go a penny over our overdraft limit, huge queuing times at branches and half-an-hour enduring a tinny version of "Greensleeves" before we can speak to a call centre worker in Mumbai: it all adds up to the impression that banks don't really care about their customers. And if they don't care when the sun shines, why would they give a monkey's when it rains?

And maybe some sections of the media have not helped ease the Northern Rock hysteria. Certainly, pictures of queues outside branches only added to the public panic. And in some quarters sensationalist reports were read by those with an inadequate grasp of financial matters. I would include John Humphrys' performance on the Today programme on the Friday the story broke in this category. It is fine to lambaste politicians, John, but when it comes to delicate matters of finance, a more balanced approach is needed. For many of those who rushed to join a Northern Rock queue that morning, the Today programme was their only source of information on the matter.

So where do we stand today as far as the global credit crunch is concerned? The Bank of England has blotted its copybook for the first time since it was made independent by Gordon Brown back in 1997. To refuse to intervene to help out reckless banks, only to perform a humiliating U-turn, has made everyone question the judgement of an institution that had hitherto looked unblemished.

The Bank's authority, so vital in maintaining stability in the City, will not recover until a broom is swept through the Governor's office. Whatever else it must be, the Bank has to be consistent. In the case of Northern Rock it was like a poor parent who hands out sweets to a crying baby.

Northern Rock? Game over, I am afraid. As soon as the dust settles it will be bought. That may be at a fraction of its share price today, if its mortgage book is as fragile as some in the industry claim. Adam Applegarth will have to go.

As for the Feeble, sorry, Financial Services Authority, there doesn't appear to be a banana skin too small to slip on. It completely failed to spot looming credit troubles. So far it has been a passive spectator to the turmoil that has engulfed the markets. So when Sir Callum McCarthy, the FSA chairman, sits down in front of the Treasury Select Committee in a couple of weeks, it should make gruesome viewing. It is, after all, the FSA's responsibility to ensure that UK banks retain sufficient liquidity. It is the FSA that regulates how banks should behave and what constitutes excessive risk, not the Bank of England.

It will be interesting to see if the watchdog casts a fresh eye over the RBS takeover bid for ABN Amro, which will place strains on the Edinburgh-based bank's capital structure. In light of what happened to Northern Rock, the FSA should look seriously at any bank putting undue stress on its balance sheet to further its own corporate ambitions.

No one has come out of this smelling of roses. But amid the carnage of ruined reputations, it is important to remember that London is still, in my view, one of the best-regulated financial markets in the world.