UK News

Insights from the UK and beyond

from Hugo Dixon:

The City has huge scope to expand

Finance has rightly been in the sin bin for the last six years. And the cleanup job isn’t finished. But Mark Carney, the new Bank of England governor, is correct to stress how a large and expanding City of London is good for Britain, Europe and the world – provided it is properly organised.

Carney’s comments, in a speech last week, will seem heretical to many – maybe even to his predecessor, Mervyn King, who showed a barely disguised disdain for financiers. Would it really be healthy, for example, for the balance sheets of British banks to reach nine times GDP, double the current ratio – as Carney projected they could by 2050?

British public will have some big questions about the potential resurgence of finance. Will taxpayers be asked to swoop in again to bail out bust banks? If a rescue is needed, would the government have the wherewithal to support a gigantic sector? Is it wise for the UK to put so many of its eggs in the finance basket?

The answer to the first question is not yet a firm “no”. The job of making the financial system safe is still a work in progress. The priority is to ensure that any bank can fail without wreaking economic havoc. In theory, this can be done by “bailing in” shareholders and bondholders, rather than relying on taxpayers. But there must be enough capital to absorb all the losses and authorities across the world will have work together seamlessly.

from Hugo Dixon:

UK should get on front foot with City

It is perhaps too much to expect Britain’s Conservative-led government to lead any initiatives on Europe, such is the orgy of self-destruction in the party over whether the UK should stay in the European Union. But, insofar as David Cameron manages to get some respite from the madness, he should launch a strategy to enhance the City of London as Europe’s financial centre.

Britain has in recent years been playing a defensive game in response to the barrage of misguided financial rules from Brussels. It now needs to get on the front foot and sell the City as part of the solution to Europe’s problems. The opportunity is huge both for Britain and the rest of Europe.

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