About four months ago, I attended a conference featuring the UK's chancellor Alistair Darling. It was a time when the credit crunch was seen as a crisis confined to the financial system. Regulatory mandarins from the UK, US and the continent were debating what the best future form of banking regulation might be, and Darling was speaking approvingly of all the post-Northern Rock measures that his government was implementing.
Outside the conference, the economy seemed to be humming along, still buoyed by the momentum of over-valued housing and credit markets. Stock markets were rebounding, and consumer confidence remained strong. Inside the conference, there were people who knew full well what damage had been wreaked to bank balance sheets, and the contraction in economic activity that the damage repair process implied. At this point, I stood up and asked Darling when he was going to convey this reality to the wider voting public.
Darling's response was cautious, but more recently he has bitten the bullet and attempted to communicate how bad things might get in the UK. In the US and continental Europe, a similar picture of widespread risk aversion can be found. The question is increasingly being asked, what is the banking and mortgage system supposed to do, and where should governments prop it up?
Amid this gloom spreading out from the banking world, it is worth remembering that the insurance and pensions industry, apart from some special cases, is as healthy and resilient as it has ever been. Risk management discipline is thriving and is not only protecting balance sheets in advance of external shocks, but is also driving product innovation in areas such as pension buyouts and variable annuities.
In banking however, financial innovation is now a dirty word. There are too many writedowns and investor lawsuits for any other conclusion to be drawn. Top hedge fund managers, bankers and senior regulators all tell me that it will take years for the reputations of investment banks to recover.
While it is tempting for observers from the insurance and pension world to feel a twinge of schadenfreude at a sector that used to condescend to them, the fact remains that the world needs a healthy banking system. Provision of credit and liquidity to individuals and corporations underpins economic growth, and the consequences of this not happening are now obvious.
Of course, bankers are keen to show that they are genuinely useful in these difficult times, and the votes they receive in our rankings, along with consultants, shows that our readership continues to appreciate their services. Emboldened by successful transactions, some bankers are keen to claim the credit for financial innovation in the traditional way that one expects from them.
That is fine, but they should in turn remember two things. Firstly, insurance and pension practitioners are increasingly aware of the choices available to them in tackling their risk and capital management challenges. Secondly, investment bankers should try to step back and acknowledge the broader social debate about their usefulness that is now taking place in the wake of the credit crunch.