Mervyn King, the governor of the Bank of England, has tonight made a big intervention into the debate on banking reform. In a speech at Buttonwood, New York, he describes the Basel III bank regulations as inadequate and proposes a much more radical structural breakup of the banks:

"If [Basel III] is a giant leap for the regulators of the world, it is only a small step for mankind. Basel III on its own will not prevent another crisis."

Surveying the various proposals for higher taxes, levies, higher capital holdings etc -and the idea of "living wills" for banks that are too big to fail, King says:

"But taxes, the Basel capital requirements, special arrangements for systemically important financial institutions and enhanced resolution procedures all have drawbacks and are unlikely to do the job perfectly."

This leads him to a list of much more radical proposals.

1. Forcing the riskiest banks to hold capital "several times the magnitude" of requirements at present.

2. The Volcker rule-style enforced breakup of banks into speculative and non-speculative arms.

3. The "Kotlikoff proposal", which forces banks to match each pool of risks with a requisite amount of capital, preventing losses in one spilling over into another.

4. Stunningly, Mervyn King imagines the "abolition of fractional reserve banking":

"Eliminating fractional reserve banking explicitly recognises that the pretence that risk-free deposits can be supported by risky assets is alchemy. If there is a need for genuinely safe deposits the only way they can be provided, while ensuring costs and benefits are fully aligned, is to insist such deposits do not co-exist with risky assets."

King does not advocate any of these radical plans - but the fact that he goes out of his way to list them, and to place them on the agenda of the UK's Independent Commission on Banking, means that we are not yet at the end of the debate about long-term reform of the banks. It may take years, even decades says King, but:

"This crisis has already left a legacy of debt to the next generation. We must not leave them the legacy of a fragile banking system too."

Beyond the technicalities, the fact that a central banker in a G7 country is prepared to imagine such outcomes is itself significant. Imagine the head of the UK Armed Forces floating the idea of a Swiss-style militia and giving up the nuclear deterrent and you get a sense of the scale of blue skies thinking the formerly "unswervin' Mervyn" is doing.