He asks the question of whether implementing the recommendations included in the Independent Commission on Banking's final report will solve this dilemma and concludes the answer won't be known for years.
My observation is that Mr. Osborne lost a tremendous opportunity to substantially improve the UK's position as an international financial center, to lower the risk of the banks and to increase the contribution of the financial services industry to the Treasury.
Simply put, the characteristic that makes for a dominant financial center is transparency. The better the disclosure requirements, the more powerful the financial center.
For example, post World War II, New York was perceived to have better disclosure requirements and it overtook the City.
What Mr. Osborne should have required is that any bank that participates in the City must provide ultra transparency. By disclosing on an on-going basis their current asset, liability and off-balance sheet exposure details, market participants could assess the risk of each bank.
As everyone knows, when market participants can do a better job of assessing risk, they can do a better job of setting the amount and price of their exposure to each bank.
Banks with low risk would be rewarded with low cost funds. Banks with high risk would face the drag of much higher cost funds. This form of market discipline would put pressure on banks to reduce their risk.
Rather than take proprietary bets, the banks would focus more on executing trades for their clients. The result would be a change in the character of net income from high risk to low risk.
From the perspective of counter-parties, there is a preference for doing business with firms where the firm's current risk can actually be assessed. This too would lead to the City attracting more business from the global financial markets.
Finally, no bank would leave the City if ultra transparency was required because doing so would be an admission that they have something to hide. An admission that would result in this bank seeing its cost of funds increase dramatically.
However, instead of a simple reform like ultra transparency that would solve the British Dilemma, Mr. Osborne opted for a number of reforms that may or may not do the job.
In short the problem is this. Britain is home to some very large banks. As Mr Osborne pointed out on Monday, the combined balance sheets of UK-headquartered banks amount to close to 500pc of Britain's GDP, compared to 300pc in France and Germany, and 100pc of US GDP.
This means banks present a particular risk to Britain. However, as anyone with a passing interest in investment knows, with risks come rewards.
The rewards in this case is tens of billions in taxes the financial services industry pays each year....
Hence Mr Osborne's dilemma. How do you on the one hand reduce the riskiness of banks to the UK, without also killing the proverbial Golden Goose?
On Monday, giving the Government's response to the Independent Commission on Banking's (ICB) final report, a body Mr Osborne himself set up last June, the Chancellor attempted to answer this question.
Since the ICB published its report on September 12, Mr Osborne has met with the chief executives of all the major banks to discuss the detail of the document. Each bank has come with its own fixed agenda, looking for concessions that will ensure they are less affected by its proposals.
HSBC, for instance, made it clear that a requirement to issue new loss-absorbing capital against the entirety of its global balance sheet was a deal-breaker as far as it was concerned. Both chief executive Stuart Gulliver and Douglas Flint, the bank's chairman, lost no time in hinting that such a requirement could lead HSBC to consider moving relocating its headquarters abroad.
So on Monday, Mr Osborne included what he might as well have called an "HSBC clause" when he said conceded that while banks would need to meet a minimum 17pc loss-absorbing capital requirement for their UK operations, the authorities could make an exemption for non-UK businesses where banks could "demonstrate they pose no threat to the UK taxpayer"....
Mr Osborne was also careful to ensure the large international banks such as Goldman Sachs, JP Morgan and Deutsche Bank that have made London the home for their European investment banking businesses were in no doubt that the rule changes were not for them.
"The competitiveness of the City of London as a location for international banking will not be affected," he said.
City observers were quick to point to what one described as the continuing "Wimbledonisation" of the British banking industry, i.e. that London has the best courts, but does not supply the players.
"It seems the Government has decided to complete the Wimbledonisation of the City by driving the remaining UK players out of it," said Simon Gleeson, a partner at law firm Clifford Chance.
In case there was any misunderstanding about who exactly Mr Osborne had in his sights, he decided to name them.
"I believe RBS needs to go further, and the management agrees," said the Chancellor as he endorsed the plans revealed by The Sunday Telegraph for the state-backed bank to more than halve the size of its investment banking arm.....
"We believe RBS's future is as a major UK bank, with the majority of its business in the UK and in personal, SME and corporate banking," said the Chancellor.
For the Britain's other major banks, there were few surprises and with consultation open until the spring there is plenty of time to iron out the details of what exactly will happen and when. However, it is unlikely there will be too much further lobbying.Since the begin of the solvency crisis in 2007 the banking industry has been heavily lobbying to avoid any changes in how they do business. There is no reason that they would stop lobbying now.
Barclays chief Bob Diamond has already said the bank will implement whatever the Government decides, while Lloyds Banking Group had its sale of 632 branches, the "Project Verde" deal, endorsed by Mr Osborne.
Only time will tell if Mr Osborne has solved the British Dilemma. However, yesterday he went further than any UK politician thus far in trying.
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