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Bloated banks are “an existential threat” bigger than terrorism

John Lanchester, writing for London Review of Books, offers a dire warning about the status of Britain’s big banks that likewise speaks loudly to all of us living over here across the pond, since we’re in a similar situation:

As the new governor of the Bank of England, Mark Carney, takes up his job, it’s a good moment to reflect on the nature and scale of the work ahead of him. In the rear-view mirror, he can see how our banks reached their current condition — a story full of failure, scandal, greed and incompetence. That, as far as the overall picture of modern Britain is concerned, is the fun part. The difficult thing is looking forward and trying to work out what to do next. That’s because in their current condition our banks are an existential threat to British democracy, a more serious one than terrorism, either external or internal. As Andrew Haldane, director of stability at the Bank of England, put it in a historical overview a few years ago, ‘there is one key difference between the situation today and that in the Middle Ages. Then, the biggest risk to the banks was from the sovereign. Today, perhaps the biggest risk to the sovereign comes from the banks. Causality has reversed.’ Yes, it has: and the sovereign at risk is us. The reason for that is that in the UK bank assets are 492 per cent of GDP. In plain English, our banks are five times bigger than our entire economy. (When the Icelandic and Cypriot banking systems collapsed the respective figures were 880 and 700 per cent.) We know from the events of 2008 and subsequently that the financial sector, indeed the whole world economy, is in an inherently unstable condition. Put the size together with the instability, and we are facing a danger that is no less real for not being on the front page this exact second. This has to be fixed, and it has to be fixed soon, and nothing about fixing it is easy.

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