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The scale of bank losses had become numbing - either too big to comprehend, or getting a bit less bad.

It was so last year's news.

But the £24 billion write-off on bad loans has restored the element of shock.

Coming on top of a £15bn write-off in the accounts published last year, most of this week's announcement of loss was from the Halifax Bank of Scotland legacy.

And most of the HBOS legacy was in commercial property.

Amid all the idiocy and greed that collectively ran numerous banks deep into the red around the world, there should be a special place in the hall of infamy for the Bank of Scotland's corporate division.

One consequence is that the biggest presence on the British high street is hobbled in how well it can re-engage with viable businesses and individuals who want to get out from under the recession.

Cost cutting

Another is hidden behind one of the other significant figures in this year's Lloyds results.

Chief executive Eric Daniels has turned up the heat on the cost savings he thinks he can drive out of the bank through the combination of Lloyds TSB and HBOS.

That was originally targeted at £1.5bn over three years, ending at the end of next year.

And so far, almost £300m has been spent on severance payments for more than one in 10 of Lloyds' staff.

About 13,000 employees have left, about 1,000 in Scotland.

Daniels is now targeting £2bn in savings by the end of next year.

So you can expect a whole lot more job losses, can't you?

Not so, claims a spokesman. This year is about "heavy lifting" of combining IT operations.

Meantime, we're not supposed to assume anything about job losses.

Too big to fail

So with our faith restored in the ability of banks to shock and astonish with the scale of their losses, greed and incompetence, we're back to the debate over what is to be done with those deemed "too large to fail".

Clearly, something's wrong with finance.

It's not meeting customers needs.

It's sustained by unsustainable global imbalances.

And it has proven too powerful to regulate adequately.

The issue was raised by economist John Kay on a recent visit to his childhood home of Edinburgh.

A fierce critic of the limits of regulation and the awesome lobbying power of finance, he's a vigorous proponent of breaking up the banks.

He's in powerful company, including the Governor of the Bank of England, the former chairman of the Federal Reserve, significant opposition figures at Westminster, not to mention the President of the United States.

So it's probably worth a look at the argument.

Canadians conservatives

His lecture was partly to address the 'what if...' question of how an independent Scotland could handle its banks' problems differently.

That, in turn, raised the question of whether the people of small nations were solely responsible for the misdeeds of their banks.

Why, for instance, is Iceland being expected to stump up?

Yes, the country partied for a decade on the back of its financial boom, but that doesn't mean the whole country is liable, does it?

Isn't the systemic damage threatened by the collapse of an Icesave or, even more so, a Royal Bank of Scotland, much more of a threat to big economies than it is to small ones.

An independent Scotland would have had to go to an independent England and the US to say: solve this with us, or be in precisely the same mess we'll be in.

And what, for another instance, about Australia and Canada, asked Kay, in a lecture for the David Hume Institute?

Both had bank systems that avoided the meltdown relatively well. Why?

Perhaps because Australia's banks operate in a country with natural resources and Asian neighbours that kept it out of serious recession.

John Kay's argument is that their regulators were conservative, but only because the banks are likewise themselves.

And that leads to the third possible explanation: both countries may have been infected by the traditional canniness of Scottish emigrants that so disastrously deserted 21st century Scottish bankers.

Casino banking

What, then, about the notion of "narrow banking": that is, splitting and creating banks so that there are elements that are given explicit government protection because the functions they provide in oiling the wheels of the economy - the stuff that can't be done without, even for a day.

The next tranche of banking, argues John Kay, would be given more limited protection, at an insurance cost, and it would include the type of business banking that could withstand temporary disruption.

The casino, investment banking divisions would be left to operate more freely, in the knowledge that they have no protection, and could not collapse the rest of the system.

It remains unclear if you could have single corporations with firewalls installed to ensure these elements can be separated.

Credit crunch

In the eyes of some very senior Scottish bankers quizzing Kay, the questions included: how could this could meet the needs of business customers, whose needs for hedging instruments seem to fall across the boundaries laid down?

Would it provide sufficient returns to attract the necessary capital investment for existing banks or newcomers, when a less rigorous split in less regulated countries and sectors could take that capital elsewhere?

How can we encourage more diversity, with different types and sizes of banks specialising in different things? This addresses one of the results of Britain's banking regime - in a trade-off of domestic diversity against globalised scale of its big players, it is big scale that has won so far.

If unsubsidised by the profits that usually flow from investment banking, would the British public be willing to pay the costs of providing the nation's basic financial plumbing?

The message from bankers is: if you want narrow banking, don't think current accounts could remain free.

What about the contraction of credit?

The unravelling of banking as it has developed would mean an unravelling of the leverage that has provided credit at levels for which the economy has become geared.

Take the banks apart, require bigger capital balance, and it's hard to see how credit could do anything other than contract - a new type of credit crunch.

There are consequences to the proposition that banks need broken up. And there are unknowns.

The most obvious 'known', however, is that it would tear apart the vast machine centred on the City of London that has been pumping earnings into the British economy and the Treasury.

If it is as broken as John Kay and others say, and if it could be reformed to focus more on the needs of customers, breaking up Britain's international banking advantage could be an attractive political option.

Good riddance, argues Kay.

But the Big British Bank Break-up would need to be accompanied with a political narrative that offers the Next Big Thing to take its place in generating jobs and revenue.

And no politician has found that yet.