David Prosser: Another crisis that the bankers didn't see coming their way

Of the two parties it is the Conservatives that seem to be thinking again about their policy towards the City: the FSA may get a stay of execution

Outlook Two weeks before the election, a rather unusual briefing note went round the City, where support for the Conservatives has generally been loyal. Jonathan Pierce, Credit Suisse's highly rated banking analyst, cautioned that a victory for any party other than Labour might give the financial services industry a headache.

"A majority Labour government would largely maintain the status quo for the banks," Mr Pierce explained. "But a Conservative government or coalition including the Liberal Democrats might bring a more immediate and unilateral tax and increased medium-term uncertainty over the structure of the sector."

A prescient warning as it turns out, though even Mr Pierce could not have predicted that the Liberal Democrat Treasury spokesman, Vince Cable, would end up as Secretary of State for Business, with a special responsibility for the banks in his brief. Nor that the new Chancellor's number two, the Chief Secretary to the Treasury, would be another Liberal Democrat, David Laws.

It would be easy to assume that some of the rougher pre-election promises made by Mr Cable – like no bonuses at all for bank board directors and maximum cash bonuses of £2,500 for everyone else – will now be smoothed out by the Lib Dems' coalition partners. But don't bet on it: on the evidence of the coalition agreement that was published yesterday, there is every chance that Mr Cable will get to keep many of those pledges.

Indeed, of the two parties, it is the Conservatives that seem to be thinking again about policy towards the City. In opposition, they vehemently insisted that the Financial Services Authority would be abolished. But under this coalition government, the regulator now looks set to get a stay of execution, even if some of its powers are transferred to the Bank of England.

The coalition agreement does, however, promise a review of bonuses, a banking levy and a commission that will explore whether banks with retail and investment arms should be broken up. Should Mr Cable's bite prove to be as painful as his bark, many in the City will be horrified.

It is all that they deserve. A banking levy is coming one way or another, courtesy of the IMF and the G20. As for forcing retail banks to lose their investment banking divisions, the argument that many of the more high-profile failures of the credit crunch were not these sort of combined operations – Northern Rock, HBOS, Lehman Brothers – will not wash. The point is that as there is now an implicit state guarantee that a retail bank will not be allowed to fail, the same is true of investment banks linked to those institutions. That cannot be allowed to continue.

And then there is the bonus question. Would a Conservative-led government really insist that bankers should not be allowed to take cash bonuses worth more than £2,500? It seems inconceivable. But we are in an era of "new politics" now.