Can the masterminds of the new high street banking giant restore faith in the industry?

• Lord Levene must make the most of Lloyds' and Northern Rock's

assets

In the top circle are the old faces that have weathered the financial traumas of recent decades. Before the most recent bank crisis were the other shocks - 9/11, Barings, the European Exchange Rate Mechanism crisis, the Lloyd's of London names crisis, and the industrial and inflation crises in the 1970s. Although this latest debacle has been on an unprecedented global scale, the issues it raises will seem to those in the top circle a little like old rope.

Some old faces last week emerged with the aim of starting to glue back together some of the pieces of the UK's banking industry. Lord Levene, chairman of Lloyd's of London, and Sir David Walker, author of the recent influential review on bankers' pay, were named as the leaders of a venture designed to launch a new UK retail bank.

Among the detritus left by the bank industry's most recent implosion are some key assets - namely Northern Rock and some 600-odd branches owned by Lloyds Banking Group, which European regulators insisted be sold off as punishment for having received a multi-billion-pound bail-out from the government.

The announcement from the group (the venture has been dubbed "Project New Bank") was described in glowing terms as being a chance to create a wholly new retail and corporate bank - no dodgy wholesale or international casino operations - that is profitable and attractive to investors, led by some of the UK financial industry's most respected figures and backed by some of the biggest names in the investment world.

With mortgage lending and lending to small businesses still scraping a dry barrel, the market has been begging for some competitive entrants. But despite the best efforts of the last Labour government this has so far been slow to materialise.

Metro Bank, launched by flamboyant American bank and burger billionaire Vernon Hill, will open its first branch in London at the end of the month. Sir Richard Branson's Virgin Money has yet to make significant moves, while Tesco Bank, which aims to eschew traditional high street bank branches, is biding its time developing a back office sufficient to launch a mortgage operation next year. Another venture, led by Panmure Gordon analyst Sandy Chen, has so far struggled to secure funding and regulatory clearance. Bailed-out RBS, which like Lloyds was also ordered to sell branches, found its firesale met with lacklustre interest. The 2 billion deal to transfer 312 branches to Spanish bank Santander is currently being wrapped up and is expected to complete before September.

Grey eminences

BOTH of the City grandees behind "Project New Bank" have long histories in financial services and government. Lord Levene of Portsoken has had a varied career from government defence procurement to his latest, chairman of the Lloyd's insurance market. He has gained respect as a trouble shooter. For one, he is credited with dragging the 320-year-old insurance market blinking into the 21st century after it was shaken by a series of disasterous claims, the Piper Alpha oil platform fire among them, which cost the mutual society of investors 8 billion between 1988 and 1992.

According to Levene, Lloyd's own revival showed one way of how the banking industry might repair itself, by improving transparency about where risk is accumulating, centralising oversight of the activities of risk-takers, and bundling old, impaired assets into a separate unit to free up capital.

"Lloyd's, 15 years ago, was the RBS of today," Levene, said in an interview. The road to recovery is "very long, hard; you haven't got a quick-fit solution," he added.

Walker too played a role in sorting out Lloyd's. Once tipped to take over as head of the Bank of England, Walker instead led a report on the arcane system of risk among "names" in the wake of near-disastrous asbestosis claims. Walker also established the Securities and Investment Board, the precursor to the Financial Services Authority. However, Santander, with its ownership of Abbey and Alliance & Leicester, could hardly be counted as a new player on the UK banking market.

Which is why news of the Levene and Walker project attracted so much favourable attention. The size of the prize is considerable. Northern Rock, with 76 branches across the UK, offers retail savings balances of approximately 19bn and a 10bn book of residential mortgages.

But the Lloyds branches are even more attractive fruit. On their own, it is estimated the Lloyds branch network would create a bank worth between 3bn and 4bn and would account for about 5 per cent of the retail banking sector, adding instant heft to any new entrant looking to mop up disaffected bank customers.

A bid by the City grandees for Lloyds branches might also prove particularly good for Scotland, The Lloyds package includes 185 Scottish branches. After Lloyds swallowed HBOS, there was an outcry over the fact that 70 per cent of the retail banking market was held by RBS and Lloyds. It was feared that, with 300 Bank of Scotland branches as well as those of Lloyds TSB, the newly enlarged bank would slash jobs and branches north of the Border. But the new City grandee bank - bravely and perhaps a little foolhardily - has claimed it will "maintain job levels of the assets acquired". This is despite the fact many suggest that, while Scotland may not have enough banking operators, it has more than enough branches, particularly in an era of austerity when the clever money is keeping overheads low.

The pulling together of the ambitious plan has moved quickly, at least since the general election, and it is testament to the weight of the grandees' names that its investors have pledged billions of pounds - "as much as it takes to get the job done" - to buy either, or both.

Long before the last election, then Chancellor Alistair Darling seemed to be in no rush to sell off Northern Rock, despite preparing the way by dividing it into a "good bank" and a "bad bank", whose assets were considered too murky to touch, Ahead of the election, there seemed little point in making a sale. Neither had the markets, lashed by sovereign debt crises and rollercoaster stock markets, recovered enough to pay what Northern Rock is worth - an estimated 1.5bn.

Lloyds too is being coy, insisting it may yet hold out to the last minute - the November 2013 deadline - to sell, if only to avoid the slightly sordid prostitution of RBS's quick sale to its only suitor, the Spaniards.

But the arrival of the grandee bank, which has enlisted the financial might of Aviva, F&C and Invesco, demonstrates there are signs of life in the market yet. Next week the group is set to launch a fundraising as an initial test of investor appetite, with a much larger one due later when the time comes to buy.

This is a welcome relief to Chancellor George Osborne, who as the ultimate power behind UKFI - the body which holds the UK's stakes in banks - is keen on getting some money into its depleted coffers through some asset sales. The Lloyds branches are set to fetch 4bn, of which the government would get a 40 per cent share.

Labour remains wary about the emergence of the new bank, hinting that the coalition might let some of the assets go to their friends too cheaply. A Scottish Labour spokesman said: "It is vital that the UK government's investments are realised to achieve the best return for the taxpayer. The government must act in the interest of the taxpayer and not just take any offer that comes along."

That the grandee bank has a Tory tinge is clear. Levene, who is tipped as chairman of the new bank, has long alliances with an old guard of Conservatives.

It was outgoing prime minister John Major who made him a life peer in 1997, although Levene sits as a crossbencher, which suited the need to be apolitical in his previous role as Lord Mayor of London and his chairmanship of Lloyd's. But he was plucked from industry into the more dangerous waters of politics back in 1984 to become a special adviser to then defence minister, Michael Heseltine. Later he became head of defence procurement and, eventually, Levene would act as an adviser to Norman Lamont while he was chancellor, as well as Major.

Walker is perhaps less overtly politicised, having been hand-picked by Darling to set out a fix for the financial regulation that so badly failed. But Walker, once described as "so white that Snow White looks dirty", has an unassailable reputation. This was despite argument that as one of the architects to the failed system, he was perhaps not best placed to fix it.

Neither of the two men is particularly young - Levene is 69, Walker is 70 - but they are both travelling in the right circles. Levene has been working closely for a number of years with Lloyds Banking Group chairman Sir Win Bischoff, both on Alistair Darling's heavyweight cabal of advisers, the Financial Services Global Competitiveness Group, and on the advisory council of the newly forged City promotion body, The City UK. Their association is set to smooth negotiations when "Project New Bank" makes its intentions clear.