Well, an excellent new report by The Centre for Research on Socio-Cultural Change (CRESC) blows a big hole in that carefully constructed narrative. In 'Scapegoats aren't enough: A Leveson for the Banks', researchers argue that the fundamental defects in the UK financial system are so deep that they require a Leveson-style inquiry (and by implication not a narrow LIBOR-focused parliamentary inquiry) which has a broad judicial remit to investigate the banking business models and the cultures within them. In addition, they argue that any such inquiry panel should involve a broad membership from across society so as to ensure that 'finance does not report on finance'.

An Leveson-style inquiry is seen as vital by the researchers because of the UK's need for a "fundamental redefinition of the social and economic roles of finance. Banks must become public utilities with the duty to serve the wider economy, not players in casinos."

The new CRESC policy briefing argues that these deep-seated problems won't be solved by firing a few top bankers, prosecuting a few white-collar criminals, or even by conducting an inquiry into the workings of LIBOR, necessary though all these are.

They argue that: the claimed economic benefits of the City for the 'real' economy are an illusion, the product of effective PR over the years by the City elite; that the PR offensive has been effective because the City has enjoyed unique privileges in the government of finance, and unique access to top policy makers; and that the result is that the City is a web of markets proliferating increasingly complex and risky financial instruments that do little or nothing to promote welfare or efficiency in the wider economy.

Last time round, the UK government bailed out the banks but failed to follow up on real reform, in part because the City engaged in a huge PR campaign so as to see off more radical change. There's now a second chance to make real change of the sort I've been suggesting over many weeks in this column. That should involve a fundamental rethink of our banking system to serve households and small firms, and should include splitting up the 'too big to fail' banks.

So what's to be done?

The CRESC report picks up on a number of themes I've been banging on about for quite a while in this blog, and there are seven areas of reform I'd like to flag up from the report, with some of my own thoughts added on how this could be done:

Firstly, the Vickers Commission's idea of putting a 'firewall' between the retail and investment arms of the big banks was never enough, in part because the City employs some of the brightest brains who will find a clever way around such regulation. A complete separation of utility and casino banking is needed, as I argued last year. Vickers was always too little too late and events have anyway moved on.

Secondly - and as John Clancy has noted here at the Birmingham Post - the Bank of England's provision of liquidity for the banking system through QE has effectively kept capital-destroying 'zombie banks' on life-support. As the CRESC researchers note, this has effectively diminished the impetus for more serious reforms. Never mind as well the fact that the constipated banks have simply sat on much of the QE cash that has been injected into them. Meanwhile an austere fiscal policy has reduced aggregate demand in the economy, and hence attractive lending opportunities for banks. A genuine 'Plan B' is needed to create the space for banking reform.

Thirdly, as the CRESC researchers note, rebalancing the economy actually needs a smaller investment banking sector. The CRESC policy brief highlights how the social contribution of investment banking to the UK economy is either negligible or negative. They also note that the size, complexity and opacity of the modern banking system makes modern finance near ungovernable:
"the task is therefore to take the more radical step of shrinking and simplifying the investment banking sector to drastically diminish socially useless speculative activity and leave behind a smaller but more effective system which acts as the servant of industry and wider society rather than the master".
One way to do this would be through a financial transactions tax, something I've blogged about here before.

Fourthly, incentives need to be re-engineered. As a first step this could come via the taxing of bonuses, and more importantly by regulating compensation ratios.

Fifthly, as the CRESC report notes, there really is a need to foster diversity in the banking system. As I've noted before, picking up on the work of my old boss Professor Jonathan Michie, a diversity of ownership types and business models can help ensure diversity in corporate governance, in the risk appetite of banks, in incentive structures and bonuses, in policies and practices, and in organisations' behaviours and outcomes.

In other words, having a much bigger, more vibrant and well run mutual sector can offer a bulwark against financial contagion, especially when big shareholder-owned plc banks dominate and unbalance our financial system. So fostering such diversity should be a key part of reforms of the banking system.

Sixthly, there is a need to break up the big banks. These have been 'too big to fail', limit competition, and they engage in high levels of lobbying so as to prevent real reform. We need to break the banks up - preferably on regional lines as we've been arguing for here.

Finally, as I argued only a few days ago, there is a need to make the nationalised banks act in the public interest. We really do need a state-backed small business investment bank, and the easiest way to do this would be to fashion it out of RBS. But other banks shouldn't be let off the hook either given the huge amount of public support they have had.

So rather than Merlin's meaningless gross lending targets, how about a net lending target figure for the bailed-out banks, with banks being taxed on any shortfall on lending? That might focus minds in those banks on figuring out which small firms were really worth lending to, in contrast with the head office 'computer says no' credit-rating process that the big banks pass off as business lending decision-making these days.

All in all, it's time for some pretty big reforms.

Professor David Bailey works at Coventry University Business School