Rhydian’s central argument was that banks took money from depositors and promised to keep it safe, but they lent this money to borrowers leading to a mismatch of keeping money safe but putting it at risk through lending it out.

Despite regulation, capital requirements and deposit protection schemes, Rhydian felt that it resulted in banks being over-capitalised for the good times but still under-capitalised when the worst happens.

“It is intuitively inefficient – and therefore value-destroying – for the entire banking system to be wrong one way or the other the whole time: too safe in the good times and not safe enough in the bad.

“And let’s be clear: we all pay for that inefficiency. Capital requirements amount to nothing more than a sticking plaster over a flawed system.”

As a result, Rhydian has put forward a new system in which banks provide the service of safekeeping money and then charging a fee for that service rather than lending the money out.

Under the new system, lending would be done via capital markets with investors receiving a direct share of the upside or downside from the investments in the form of fair returns, which means the tension of trying to guarantee safety doesn’t arise.

“This may initially seem like a radical idea, but it’s not as far-fetched as you might think.

“Banks already extract a price for certainty in the form of rock bottom interest rates for depositors. What’s more, the end of free banking is a distinct possibility.

“In the last decade, we also saw banks withdraw in a major way from lending (particularly to small businesses).

“At the same time more people are seeking better returns by investing through marketplace lenders.”

Rhydian was speaking at an event held by New City Agenda and its co-founder Lord Sharkey felt the growth of peer-to-peer lenders challenging the high street banks had played a part in enhancing competition.

“Personal loan rates are close to record lows whilst the cost of overdrafts and credit cards – products still dominated by the big banks – are at record highs.”

“The Financial Conduct Authority and the Competition and Markets Authority should ensure that regulation is focused on encouraging the development of a sustainable and competitive market and consider how the benefits of enhanced competition from P2P lenders can be expanded into more sectors.”