It took a curmudgeonly ex-banker and a lorry-driving US senator-elect to force Barack Obama, the beleaguered US president, to confront Wall Street with the prospect of real reform.

Late last month, Mr Obama unveiled a plan that would force deposit-taking banks to liquidate their private equity and hedge fund operations and bar them from proprietary trading. It was the most aggressive White House attempt yet to curb Wall Street and it was delivered with its architect, the former Federal Reserve chairman Paul Volcker, looming spectre-like behind the presidential dais.

The point of the so-called Volcker rule, which was hotly debated last week at the World Economic Forum at Davos, is to reduce systemic risk by breaking up banks considered "too big to fail". The US Congress welcomed the idea, although share prices, particularly banking stocks, responded with a string of declines.

Throughout his first year in office, Mr Obama and his host of financial advisers appeared reluctant to take on the big banks despite populist rage over the huge bailouts of troubled investors and the staggering bonuses ladled out to rich executives. Even members of Mr Obama's own Democratic party have lamented what they perceive as a president cowed by Wall Street overlords such as Goldman Sachs and JP Morgan Chase.

All that changed, however, after the Massachusetts state legislator Scott Brown last month earned a US Senate seat previously occupied by the late Edward Kennedy. Mr Brown, a member of the conservative Republican Party in a decidedly liberal state, ran as a small-government populist, driving himself from one town hall meeting to the next in his signature pick-up. Casting himself as a blue-collar everyman, Mr Brown successfully mined a surge of resentment against Mr Obama's massive budget deficits and his proposed legislation to expand health care.

There is more at stake here than a single Senate seat, however. Mr Brown's victory deprived Democrats of the majority they needed to ensure passage of Mr Obama's healthcare overhaul plan along with the rest of his ambitious agenda. Mr Brown's victory galvanised a populist backlash against Washington that legislators, mindful of their own electoral prospects in an election year, are happy to indulge. The era of post-partisanship hailed by Mr Obama at the dawn of his presidency has been overrun by populist politics.

Which brings us back to Mr Volcker and his bid to domesticate Wall Street. Two metres tall and still razor-sharp at the age of 82, the imposing Mr Volcker is less a populist than a paternal eminence grise of a financial system he administered three decades ago, when as Fed chairman he ruthlessly banished crippling inflation from the US economy. Refreshingly irreverent in a city crawling with sacred cows, he is associated with the current populism only by his outspoken criticism of Wall Street.

By calling for a prohibition against banks trading on their own account and using depositors' funds to invest in high-risk markets, Mr Volcker is effectively promoting the restoration of the Glass-Steagall Act, which erected a wall between commercial and investment banking following the stock market crash of 1929. Proponents of the act, which was repealed a decade ago, argue that it kept banks from becoming Leviathans that could swamp the entire financial system should they collapse under their own weight.

In fact, such an event was averted only with the help of those enormous public bailouts.

Mr Volcker seeks to abolish a financial culture that during the go-go "noughts" socialised risk and privatised gain. The fact that this fits seamlessly with the populist vibe begs the question: can a policy option embraced out of political expediency, as Mr Obama has clearly adopted the Volcker rule, be good economics? The answer is yes, at least in this case.

Critics of the Volker rule point out that it was straightforward commercial lending, particularly mortgage-writing, and not private equity or hedge funds that brought about the credit crisis. Nor is proprietary trading by itself intrinsically more risky than the writing of loans to borrowers who may or may not be in a position to repay them.

The point of Mr Volker's initiative, however, is not so much to eradicate risk as to smash the oligarchy that dominates Wall Street more than a year after it required hundreds of billions of dollars in taxpayer funds to stay afloat. The vertical integration of banks since the repeal of Glass-Steagall has created great temples of capital that often seem to operate as a law unto themselves. In the post-Glass-Steagall world, diverting other people's money on behalf of a preferred client, under an implicit assurance of another bailout should the whole thing end in ruins, is not manipulation but entitlement.

However imperfect, the Volcker rule would do much to restore a measure of restraint on Wall Street. The fact that its presidential endorsement was coerced marks a rare convergence in Washington between judiciousness and politics.