The recent departure of Robert Diamond from Barclays marks a watershed. To be sure, CEOs of major banks havebeen forced out before. Chuck Prince lost his job at Citigroup over excessiverisk-taking in the run-up to the financialcrisis of 2008, and, more recently, Oswald Grübel of UBS was pushed out forfailing to prevent unauthorized trading to the tune of $2.3 billion.

But Diamond was a banker supposedly at the top of his game. Barclays, itwas claimed, had come through the 2008-2009crisis without benefiting from government support. And, while his bank had beenfound in violation of various rules recently, including on products sold toconsumers and on how it reported interest rates, Diamond had managed to distance himself fromthe damage.

Press reports indicate that regulators were willing to give Diamond a freepass – right up to the moment when a seriouspolitical backlash took hold. Diamondstarted to fight back, pointing an accusatoryfinger at the Bank of England. At thatpoint, he had to go.

There are three broader lessons of Diamond’s demiseat Barclays.

First, the political backlash was notfrom backbenchers or uninformed spectators on the margins of the mainstream. Toppoliticians from all parties in the United Kingdom were united incondemning Barclays’ actions, particularly with regard to its systemic cheatingon the reporting of interest rates, exposed in theLibor scandal. (The London Interbank OfferedRate is a key benchmark for borrowing and lending around the world,including for the pricing of derivatives).

Indeed, Chancellor of the Exchequer GeorgeOsborne went so far as to say, “Fraud is acrime in ordinary business; why shouldn’t it be so in banking?” His clearimplication is that fraud was committed at Barclays – a serious allegation fromBritain’sfinance minister.

After five years of global financial-sector scandals on a grand scale, patience is wearingthin. As Eduardo Porter of The New York Times put it,

“Bigger markets allow biggerfrauds. Bigger companies, with more complex balance sheets, have more places tohide them. And banks, when they get big enough that no government will let themfail, have the biggest incentive of all.”

Second, Diamond apparently thought that he couldtake on the British establishment. His staff leaked the contents of aconversation he claimed to have had with Paul Tucker, a senior Bank of Englandofficial, suggesting that the BoE had told Barclays to report inaccurateinterest-rate numbers.

Diamond apparently forgot that the continued existence of any bank with abalance sheet that is large relative to its home economy – and its ability toearn a return for shareholders – depends entirely on maintaining a goodrelationship with regulators. Barclays has total assets of around $2.5 trillion– roughly the size of the UK’sannual GDP – and is either the fifth- or eighth-largest bank in the world,depending on how one measures balance sheets. Banks at this scale benefit fromhuge implicit government guarantees; this is what it means to be “too big tofail.”

Diamond apparently believed his own rhetoric – that he and his bank arecritical to economic prosperity in the UK. The regulators called his bluff and forced him to resign.Barclays’ stock price rose slightly on the news.

The final lesson is that the big showdownsbetween democracy and big bankers are still to come – both in the United States and in continental Europe. On the surface, the banks remain powerful, yettheir legitimacy continues to crumble.

Jamie Dimon, CEO of JP Morgan Chase, presidedthis year over reckless risk-taking to the tune of nearly $6 billion (we might call ita “three Grübel” debacle), yet his job apparentlyremains secure. Dimon even remains on the board of the Federal Reserve Bank of New York, despite thefact that the New York Fed is deeply involved in the investigation not only ofJP Morgan Chase’s trading losses, but also of its potential involvement in thebroadening Libor scandal.

As DennisKelleher, the president of the advocacygroup Better Markets, documented in recentcongressional testimony, two years after the passage of the Dodd-Franklegislation, the US banking system continues to fight hard – and effectively –to undermine meaningful reform. (Kelleher’s testimonyis a must-read assessment, as is his openingstatement to the hearing).

But progress is nonetheless being made. Dimon is the public face ofmegabanks’ resistance to reform; repeated and public egg on this particularface strengthens those who want to rein in these banks’ excessive andirresponsible risk-taking.

Meanwhile, the European situation looks explosive. The European Union’sapproach to bank regulation encouraged financial institutions to load up on government debt – supposedly a“risk-free” asset. Now, given the profound sovereign-debt crisis in theeurozone periphery, government defaults threaten totake down the big banks. The European Central Bank has provided a greatdeal of emergency “liquidity” funding to banks, which they use to buy even moregovernment debt. This holds down interestrates on that debt in the short run, but creates even bigger potential lossesin the case of potential default.

Banks and politics are deeply intertwined in all advanced economies.Diamond discovered that, ultimately, politicians trumpbankers – at least in the UK.

But what really matters is legitimacy and informed public opinion. Do youreally believe the increasingly dubiousnotion that megabanks, as currentlyconstituted, are good for the rest of the private sector, and thus for economicgrowth and job creation? Or do you begin to consider more seriously theincreasingly mainstream proposition that global megabanks and their leadershave simply become too powerful and dangerous?