Carney: Mega-banks welcome in London

Tim Wallace
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Governor signals end to banker bashing in dramatic u-turn

THE END of banker bashing was officially called yesterday, after the new Bank of England governor said he is comfortable with Britain developing an enormous banking sector over the coming decades.

In a dramatic u-turn, Mark Carney told an audience of City heavyweights that a well structured sector can grow to a huge size without threatening the economy.

“By 2050, UK banks’ assets could exceed nine times GDP, and that is to say nothing of the potentially rapid growth of foreign banking and shadow banking based in London, if London keeps its share of global banking”, he said.

“Some would react to this prospect with horror. They would prefer that the UK financial services industry be slimmed down if not shut down.

In the aftermath of the crisis, such sentiments have gone largely unchallenged.”

“But, if organised properly, a vibrant financial sector brings substantial benefits.”

His speech marks a stark change from the previous approach from policymakers and politicians which saw the sector as a threat to the UK’s stability, and was cheered by City groups.

“The days of the capital Taliban have now been moderated – policymakers see they cannot go on punishing Britain’s most productive sector if they want the growth we need,” said Chris Cummings from TheCityUK.

“We are very pleased with this tone, as it shows the regulators are now confident in the industry and can let banks get on with implementing the reforms instead of watching out for new regulations.”

The industry has been pummelled since the financial crisis and has been kept under sustained pressure from the regulators.

The governor said finance is crucial to the wider economy, contributing around 10 per cent of GDP and more than 1m jobs, spread across the country. He also insisted he wants Britain to become more attractive to foreign firms, not less.

“London’s markets serve a vital global role. London acts as Europe’s window to global capital; is a centre of emerging market finance; and can play an important role in the financial opening of China,” he said.

“The UK’s financial sector can be both a global good and a national asset – if it is resilient.”

The governor also cut the cost for banks accessing emergency liquidity from the Bank of England, in a move that shows his confidence that banks have built up strong liquidity buffers.

It will soon be cheaper for solvent banks facing a liquidity crunch to swap illiquid assets for gilts at the Bank of England. Previously the Bank wanted a high cost to prevent banks becoming tempted to use its schemes instead of market sources of liquidity. But now lenders have large buffers, the Bank believes that risk has shrunk.