While there will be no losses for depositors, shareholders are bound to pay dearly for the risky funding and lending strategies of the two banks; but more importantly there will also be significant job losses, with consequences for regional employment, incomes and spending. This much was already signalled by Bradford & Bingley's announcement last week that they were shedding 370 jobs.

In the longer term, the banks' loss of independence must also impact on West Yorkshire's role as the financial hub of northern England. Within the old HBOS, the sheer size of the Halifax component – which includes the former Leeds Permanent – meant that it was more than simply a subsidiary of the Edinburgh-based Bank of Scotland. But Lloyds TSB is very much in charge of the expected restructuring of the merged business, and Edinburgh is competing hard to retain high-level activities. As has happened in so many of our manufacturing industries, strategic decision-making will move to London and beyond.

For now, however, the main questions in most people's minds are whether there will be further collapses, and whether the financial system as a whole can be brought back to some sort of normal functioning. To answer these questions, we have to look at what is happening in the corridors of financial and political power in London, New York and above all Washington, for in recent weeks the collapse of trust and the spreading panic have destroyed all faith in "free market" solutions.

In these circumstances, not only public regulation but public ownership, have been dramatically rehabilitated as instruments of government policy.

Commentators who have for years been cheerleaders for free markets have suddenly found an absence of clothes on the emperors of money. At the Labour Party conference, a reinvigorated union-led Left pressed for "old Labour" policies without immediate denunciation from either the party leadership or the media, although the Prime Minister and his Chancellor refused to commit themselves to any specific measures to rein in the City or impose windfall taxes on the energy sector.

Only last month, the big banks reluctantly underwrote Bradford & Bingley's rights issue, and ended up holding most of the new shares; today, there is no chance of a private sector solution.

One consequence will be that the debate on regulation that was initiated by Northern Rock's collapse a year ago will become much more urgent and far-reaching. None of the three partners in the present complicated ménage à trois – the Treasury, the Financial Services Authority and the Bank of England – has much credibility, which puts our politicians firmly in the limelight: this is an "England expects" moment, requiring inspired leadership and a capacity for compromise, not the partisan politics and point-scoring that so often characterises our legislature.

In the meantime, the chastened movers and shakers of the Square Mile will have no choice but to accept and cooperate with Government decisions, including if necessary further nationalisations. Expect also moves to loosen the fiscal straightjacket of the Maastricht Treaty: governments all over the world have no choice but to borrow more. Fortunately, at the global level there is no real shortage of savings: sovereign wealth funds and governments with trade surpluses, as well as the super-rich, are not going to put their money under the mattress.

If the storm is having an impact in Yorkshire, its eye is in Washington. Last night there remained huge uncertainties surrounding the US administration's bail-out plan. President Bush and Treasury Secretary Henry Paulson clearly hoped to get bi-partisan support on Capitol Hill, given the collapse in confidence on Wall Street.

Bankers like Mr Paulson have always understood that neoliberalism – in essence, the idea that markets are efficient and naturally self-regulating – is more an ideology than a policy prescription: hence the decision of Goldman Sachs and Morgan Stanley to change their legal status from relatively unregulated investment banks to the safe haven of closer regulation as commercial banks. The proposed US government purchase of $700bn of "toxic" debts seemed to be the simplest solution given the urgency of the situation.

But this has not gone down at all well with the American people. Congressmen in particular, all facing re-election in November, have been under siege from their constituents, and they have felt obliged to respond. Instead of a cosy deal between Republican and Democratic leaders in Washington, endorsed by both Obama and McCain, populists on the left and conservatives on the right have poured scorn on the proposals.

For the populists – very much in the ascendancy – the rescue plan should provide funds to halt mortgage foreclosures and head off recession, not to save the astronomical bonuses of the bankers.

The conservatives, meanwhile, regard any state intervention in markets as a form of communism, an outrageous breach with free enterprise and the American way of life.

Given the quiet support being offered by statesmen and financiers around the world, this lame-duck administration will have to forge a compromise with its critics. This is not like the Great Depression: there will be nothing as radical as Roosevelt's New Deal, because there is nothing like the collapse of world production and trade that hit the US between 1929 and 1933. But there does appear to be a sea-change towards reigning in the power of private finance, even though we can expect many more anxious moments before normal service is resumed.

Hugo Radice is a senior research fellow at the University of Leeds.