WHEN central bankers talk about setting interest rates they are famously obscure. Not so when it comes to discussing banks. In a speech on October 25th (see video), at The Economist's Buttonwood gathering in New York, Mervyn King savaged the performance of Britain's banks before the crisis and criticised the new Basel 3 proposals as too soft. Then he said what he really thought, arguing “of all the many ways of organising banking, the worst is the one we have to day.” Possible remedies included not just breaking up banks, but also “eliminating fractional reserve banking”—that is, the centuries old practice of banks taking in short term deposits and lending most of them out in riskier and longer term loans. Having left finance to its own devices for a decade the Bank of England now seems to want to redesign it.

That is, admittedly, a lot more fun than shifting interest rates by 25 basis points once in a while. But given the Bank will soon take over responsibility for regulating lenders from the Financial Services Authority (FSA) Mr King's hardening stance is likely to become deeply controversial. Within the Bank itself, there seems to be a lack of unanimity. Mr King, alongside Andy Haldane, the author of a number of imaginative papers on finance, leans towards radicalism. Paul Tucker, a deputy governor of the Bank who was involved in drawing up the Basel 3 rules is thought to be more pragmatic, as is Adair Turner, the chairman of the FSA, who recently said the new rules struck a good balance.

Britain's government has been fairly clear that it doesn't want to break up Britain's largest firms—even if that is the recommendation of a committee of wise men it has asked to review banking reforms. And outside of Britain, no major regulator agrees with Mr King. This includes the Swiss authorities, who also face the problem of giant banks based in a medium sized economy, and who recently rejected structural reform of Credit Suisse and UBS in favour of a bigger layer of so called “contingent-capital” on top of the new Basel 3 regime.

That compromise—requiring Britain's big banks to carry a further layer of convertible debt—is both sensible and still the likeliest outcome of Britain's bout of soul searching about its banks. But Mr King seems to have backed himself into a corner. If the committee of wise men, whose judgement he has endorsed, does recommend a break-up of banks and the government rejects their conclusion, could he really remain the regulator of Britain's banks?

For the banks, there is a looming sense of horror. Mr King's speech was replete with academic references but, bankers argue, he shows little knowledge of or interest in what the firms say. Only one of Britain's big banks, HBOS, made losses that would have overwhelmed the new Basel capital standards. In his speech Mr King appeared to reject this defence outright, arguing that actual losses are less relevant than theoretical losses banks would have suffered had the state not intervened in finance. Mr King rightly disdains a reliance on short term borrowing, but does not acknowledge that two of Britain's big banks, Barclays and the rescued Royal Bank of Scotland, have already substantially cut their reliance on it and built up cash reserves, while HSBC and Standard Chartered have long had an excess of deposits over loans. As to whether it would matter if any of these big banks moved their headquarters abroad, or if their constituent bits were taken over by foreign firms, the Bank has expressed no opinion.

All of which may be dismissed as the self interested carping of Britain's discredited fat cats. But even some foreign financiers with little business in Britain or the City of London are looking on with amazement, given it now appears that the governor of the Bank of England does not seem to want any of the large banks he is charged with regulating to exist. The central bank's top brass, says the boss of one of the world's largest lenders, are “behaving like a bunch of middle-class guys [or what Americans might call white-collar guys] who cannot see the bigger picture”. Mervyn King, the banker adds, had a bad crisis and now has “no idea” what he is doing. To some that kind of attack is evidence that Mr King and his colleagues are finally taking on the banking lobby; to others it is an unsettling judgment on the institution now charged with regulating the world's biggest international banking centre.

Further listening: At the same gathering, Vikram Pandit, the chief executive of Citigroup, had a different take on Basel 3 and new bank regulation.