Greg Wright: Putting the case for the defence in the financial meltdown

How times have changed. In the early years of this century, too many bankers switched their focus from risk management to risk dispersion. We all know what happened next.

The lion's share of the blame for the economic implosion of late 2008 was laid at the banking executives' door.

Pundits of all political colours are still lining up to give them a kicking.

In early 2007, no Business Secretary would have dreamed of denouncing the "spivs and gamblers" making "fat fees" in the City.

Vince Cable's onslaught didn't just please his Liberal Democrat party colleagues. It echoed a wider concern.

In some circles, it has become a truism to state that the banks were the prime cause of the recession.

Financial services have had a dramatic fall from grace. But is the criticism fair?

Not according to Stephen Hester, the Royal Bank of Scotland Group chief executive, who paid a whistle-stop tour to Leeds last week.

As the boss of a bailed-out bank, Mr Hester has a thankless job.

He's been forced to cut thousands of jobs at RBS due to competition concerns, while finding new customers and making it attractive to investors. At the same time, business pressure groups are calling on him to help kick-start the recovery by lending more money.

Mr Hester, who wasn't involved in banking during the days of the unsustainable boom, had to wander into the rubble of RBS and try to find out what went wrong.

He paid tribute to the "phenomenal" work of RBS staff, who have carried on despite a host of distractions.

Mr Hester's case for the defence of the banking sector runs like this: It has suited too many people to say that the financial crisis was of the banks' own making.

However, as he points out, there wasn't a banking crisis everywhere. The problems occurred in economies that overextended themselves during the last decade.

Too many policymakers – in other words governments – allowed massive deficits to build up. The banks, let's not forget, weren't responsible for the massive increases in public spending or the years of low interest rates.

Although nobody would claim that the banks were totally blameless, it would be the height of folly to claim that Britain's financial services sector was tarnished beyond repair, argued Mr Hester.

Mr Hester compared it to the British film industry, which is still highly regarded despite the fact that it can produce the odd turkey. We wouldn't write off the UK's film-makers because they can produce Sex Lives of the Potato Men along with hits like Gandhi and the Full Monty.

Mr Hester was also quick to highlight the strange mental agility of the banks' critics. The banks are being pilloried for an apparent reluctance to lend. But aren't they still being vilified for their "reckless lending" in the previous decade?

Mr Hester has a point. But just as the financial crisis was not universal, it's also plain as a pikestaff that not all the UK banks got into trouble.

Policymakers may well have created an environment in which it was easy to chase unsustainable growth targets and lend money to people who didn't deserve it.

But wasn't it the job of the highly paid executives to spot the weaknesses in the economic policies being pursued by the powers-that-be?

The size of the banking executives' pay packets suggested they were much smarter than the rest of us.

In fairness, only an extremely brave executive would have trodden the "safety-first" path at a time when shareholders, analysts and the media were screaming out for expansion and higher profits.

But prudence would have served shareholders, and the economy, better.

It's also important to remember that not every element of the banking system was flawed. The spotlight has rightly focused on investment banking.

It was the collapse of Lehman Brothers, one of the best known investment banks, that caused raw panic in 2008.

Northern Rock, HBOS and RBS were the prime casualties in an era when borrowing was easy. Other banks took a cautious approach and are in a healthier position.

Yorkshire Bank is, of course, the most obvious example of an institution that kept its head and has continued to prosper.

Mr Hester was right to highlight the fact that the vast majority of bank staff are "ordinary people" who do their jobs well and don't command massive salaries.

By focusing on the "fat cat" pay of a few discredited executives, we fail to honour the blameless bank workers, who, to quote Mr Hester, remain in the trenches. Thousands of them will lose their jobs over the next few years.

The anguished drama of the financial crisis has not reached its final act.