Our friends in the city

Key findings
  • Reforms after the financial crisis have failed to fully address the risks posed to the UK economy by the City of London
  • Banks remain too big to fail, and continue to receive £5.8bn a year in implicit government subsidies
  • The Bank of England must strengthen its approach to ring-fencing and implement broader structural changes to diversify our banking system

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Photo credit:   Ben Geach

February 23, 2016 // Written by:

Christine Berry, Senior Researcher & Programme Manager, Economy and Finance
Josh Ryan-Collins, Associate Director, Economy and Finance
Duncan Lindo, Researcher

Our banking system is still dangerously dysfunctional. Post-crisis reforms failed to fully address the risks posed by the City of London, and with banks back in the driving seat, these reforms are already being rolled back. We cannot afford a return to business as usual.

The UK has one of the biggest, most concentrated, risky, complex, and interconnected banking systems in the developed world. It leaves us uniquely exposed to global financial turmoil.

If post-2008 promises to reform our financial system had been kept, the dangers we face now would not be so acute. Instead, UK banks have fast-tracked a return to business as usual. Contrary to recent claims by policymakers, post-crisis reforms did not fix the structural problems with our banks. Recent concessions to the City are already rolling back the limited progress made:

Recent concessions to big banks have been justified by claims that international investment banking is vital to our economy. These claims are grossly exaggerated: our status as an international banking hub is as much of a liability as an asset:

Despite this questionable record, banks continue to threaten to move elsewhere if regulation is designed against their interests. HSBC’s recent threat to quit the UK and relocate its headquarters abroad is only the most recent example of such tactics.

This is not a credible threat:

We cannot afford a return to business as usual. Given their overstated contributions to the UK economy, and the real liabilities the City of London represents, threats to leave unless given concessions can and should be faced down. The interests of big banks should not come before those of the rest of the economy.

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