EU regulators have followed US trends by putting a big wedge between retail and investment banking.

Effective tomorrow, if you’re not a pure commercial deposit-taking institution, you will be banned from calling yourself a ‘Bank’. And, you have six months to make the change.

The new regulations are a direct result of the prolonged financial crisis and declining confidence in banks, and governments. More than 500 smaller banks have been seized by regulators world-wide, while many banks were bailed out.

Increased consumer activism on the web and in street protests has turned up the political will to find a workable long-term solution to the credit crunch.

This ruling will hit many financial services companies particularly hard. It will force even more banks to split their operations. And it’s not just the Goldman Sachs and Morgan Stanleys of the world that will be affected. Many smaller services firms have been calling themselves banks – everything from mortgage banks to private banks – that too will change.

UK economist John Kay describes this as “separating the utility from the casino.”

Sheila Bair, chair of the US Federal Deposit Insurance Corporation, yesterday said:

“We have been campaigning for this change for some years and now finally we seem to have got a swell of common purpose under way. Only FDIC-approved firms will be able to call themselves ‘banks’.”

“This will increase consumer confidence and demonstrate that the firm you are dealing with assures your cash by a statutory guarantee,” Bair added.

Next in line are new regulations for winding up failing big banks. The idea that some banks are so important to an economy that they are ‘too big to fail’ seems to be ending.

“The world economy cannot again be held hostage by mis-management on such a grand scale,” echoed an editorial in today’s Times.