If you think, as many still do, that the core activity of banks is gathering savings to oil the wheels of industry, then you are sadly out of date. Large businesses, overall, generate more than enough cash internally to cover their investment needs. Small and medium-size businesses badly need access to bank finance. They have been woefully short of it since the credit crunch. But the amounts they need are very small relative to the current scale of financial activity.
The assets – and liabilities – of British banks exceed £6,000bn, four times the country’s income. Lending to UK businesses – to manufacturers and retailers, construction companies and road hauliers, accountants and farmers – accounts for about £200bn of that, about 3 per cent of the total.
Banks contribute to the real economy in other ways. They make consumer loans, they finance property development and investment, they lend more than £1,000bn in residential mortgages. But most of the £6,000bn total of UK banks’ assets and liabilities represents financial institutions trading with each other.