Oct 29 (Reuters) – Bank of England governor Mark Carney is
kidding himself if he thinks Britain can become banker to the
world without paying high costs and taking even higher risks.
Carney, the newly minted BOE head, gave a remarkably
pro-finance speech last week in London, introducing some
sensible reforms while sounding an extremely relaxed tone about
the prospect of Britain’s finance sector more than doubling
relative to the economy. (You may at this point need reassuring
that yes, we are still in 2013, and yes, we did just undergo a
damaging crisis in which the risks of an overdeveloped banking
sector were terrifyingly demonstrated.)
“Five simple words describe our approach: we are open for
business,” Carney said, describing the central bank’s
willingness to provide cash to banks more easily, less
expensively and by pledging a wider array of securities while
making a case that institutions other than banks should be
allowed access to BOE financing. (here)
While stressing that it isn’t his job to dictate how big the
financial sector is, Carney laid out a future in which, if
current trends hold, banking assets grow by 2050 from four times
the size of annual output to nine times. By comparison, U.S.
banking assets are just a bit bigger than annual GDP.
Allowing that would be a grave mistake. Not only would it
make the political and economic might of the banks so great that
effective regulation might become impossible, it would almost
certainly starve the non-financial parts of the British economy
of focus, talent and even capital.