Last week, Mark Carney, governor of the Bank of England, brought cheer to the City of London. His robust defence of finance and declaration that “we are open for business” mark an abrupt change from the regime of Lord King, his predecessor. The financial sector will certainly love him. His views are refreshingly clear. But they are also a gamble.
In the speech celebrating the 125th anniversary of the Financial Times, Mr Carney’s central point was that “organised properly, a vibrant financial sector bring substantial benefits”. Mr Carney pointed to the scale of the London markets, with almost four times as many foreign banks as in 1913. The assets of UK banks have grown from 40 per cent of gross domestic product to more than 400 per cent.
But, he added, suppose: “UK-owned banks’ share of global financial activity remains the same and that financial deepening in foreign economies increases in line with historical norms. By 2050, UK banks’ assets could exceed nine times GDP, and that is to say nothing of the potentially rapid growth of foreign banking and shadow banking based in London.” He continued: “Some would react to this prospect with horror.” He was right, since this would turn the UK into the Iceland of 2007. He responded that “a vibrant financial sector brings substantial benefits”. This is true, he asserted, not only for the UK, but for the world: “The UK’s financial sector can be both a global and a national asset – if it is resilient.”