UK bank assets to rise above 900% of GDP by 2050

Mark Carney has predicted banking sector assets could yet swell to a staggering 900 per cent of GDP or more by 2050, but he warned against seeing the power of the financial sector as a negative for the economy due to the jobs and prosperity it brings to the country.

Speaking at a special event to mark the 125th anniversary of FTAdviser sister title the Financial Times, the governor of the Bank of England pledged to continue support to the banking sector in a speech that emphasised a major policy departure from his predecessor, Sir Mervyn King.

Mr Carney said that the Bank was “open for business”, adding that UK banking groups can be “confident that, when they want to use our facilities, they will be allowed to access them”.

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He said: “Our facilities are not ornamental. They are there to be used by banks to access money and high-quality collateral.

“We are offering money and collateral for longer terms. The range of assets we will accept in exchange will be wider, extending to raw loans and, in fact, any asset of which we are capable of assessing the risks. And using our facilities will be cheaper. In some cases the fees are being more than halved.

He continued: “Our Discount Window will be open every day for those firms requiring a bespoke facility with lagged disclosure. Its price will be lower. We will hold monthly repo auctions to provide predictable and regular access to high-quality collateral in exchange for a very broad range of collateral.

“And in times of actual or prospective stressed conditions we stand ready to provide cheap, plentiful money through more frequent auctions.”

However, Mr Carney said that these pledges would not excuse banks “from the need to manage their balance sheets prudently”, but simply reflected the need for flexibility at a time when “liquidity requirements are more exacting”.

Mr Carney cited the growth of the banking sector by highlighting that when the FT was in its infancy the assets of UK banks amounted to around 40 per cent of GDP. This, he said, had risen 10-fold by the end of 2012 - and could rise to nine times GDP by 2050.

“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. Today financial services account for a tenth of UK GDP and are the source of over one million jobs.

“It is not for the Bank of England to decide how big the financial sector should be. Our job is to ensure that it is safe. The UK can host a large and expanding financial sector safely, if we implement a reform agenda that extends well beyond domestic banking.”

Mr Carney did, however, warn that the UK had to be more international in its approach, citing declining influence over the 125-year history of the FT that has seen its share of world trade decline from around a quarter to approximately 3 per cent.