Analysis By Robert Peston BBC business editor

The chancellor sees nothing murky in the world of banking

It was history: almost 10 years after New Labour's historic landslide election victory in 1997, the Government finally said that it loves the big banks.

Ed Balls, the minister for the City who is hotwired into the chancellor's brain, told the British Bankers Association on Wednesday night that the Government is proud of banks' success.

"We do not view bank profits as undesirable," he said. "In banking, profits - which are generally strongest at an advanced stage of the cycle - are an essential part of keeping the sector sound and stable over the whole cycle."

Which was perhaps a brave stand to take, when much of the press evinces outrage at the record profits being generated by the banking giants and when there is a respectable argument that their return on capital is disproportionate to the risks they take.

Market forces are good

But there was more from Mr Balls. He did not view banks as utilities which should be regulated to prevent them from ripping off customers.

There was much delight in the executive suites of banks' head offices Bank profits: curse or blessing?

He preferred to "rely on market forces and competition policy to promote efficiency through open and competitive markets".

Rightly, this was widely seen as Mr Balls stamping on speculation that the Treasury might consider levying a windfall tax on the banks.

But more than that, it signalled that the Treasury will be much less interventionist in its relationship with the banks than it was in the early years after Gordon Brown became chancellor.

More love from the regulator

Instead it prefers to celebrate the great success of the City as perhaps the UK's only economic sector with clear leadership over almost all international rivals.

So there was much delight in the executive suites of banks' head offices.

And the joy was doubled after John Tiner - the chief executive of the City watchdog, the Financial Services Authority - told the same bankers' dinner that he would make an important concession in the way that his organisation implements the European Union's Markets in Financial Instruments Directive.

The banks' concerns were about restrictions on the way they price certain products in the wholesale markets. And such were their fears that they were warning that they might have to move their dealing rooms to Paris and Frankfurt, of all places.

Mr Tiner told them to stop fretting. Laisser-faire still rules.

Who's kicking the plutocracy?

So, was there any politics in the Balls/Brown repositioning?

Well, it's not unhelpful for the chancellor to have the banks on his side, at a time when the business lobby in general is not quite as keen on him as it once was.

And it is striking that David Cameron couldn't possibly say quite such glowing things about the banks. Quite the contrary.

Mr Cameron's strategy is to distance himself from big business, believing that the votes are in kicking the plutocracy.

All that said, the banks would be unwise to let down their guard against the possible predations of public servants.

The Treasury may no longer wish to squeeze them till their pips squeak.

But the Office of Fair Trading, the competition authority, is looking at what they charge when customers breach their overdraft limits.

And if there was a coded message in Mr Balls' speech, it was that the Treasury will still cheer if the OFT takes any action it deems necessary to make the banking market more competitive.