Do Banks Matter
Bridget Rosewell
Volterra Partners and GLA
Outline
• What do banks do, what is their role in the
economy
• Why this is likely to increase
• What is finance sector’s role in London
especially
• Could we live without it?
• Answer - no
What do Banks do?
• When economic accounts were first devised,
finance had no role, just an intermediary
• Indeed in many modern models of the
economy (including those used in central
banks) money has no role
• Interest costs are an intermediate cost,
changing interest costs changes cost of
investment and savings
• So nothing much?
What do Banks do?
• Not just an intermediary but a manager of
assets and balance sheets
• Pensions, insurance, etc
• Generating international business, a service to
final consumers
• Definitions in national accounts have changed
as a result
Recent contribution to Growth
UK Financial Services
• 2010 Financial Sector paid 11.2% of UK tax
revenues
• Largest sector paying corporation tax £5.6bn
(though down from £12bn in 2007)
• 3.5% of UK workforce generating £24.5bn of
employment taxes
• (PwC study)
The structural deficit problem
Source: Public Finances First Release, ONS
2009Q1
2009Q3
2010Q1
2010Q4
2011Q2
2004Q1
2004Q3
2005Q1
2006Q4
2007Q4
2008Q3
2000Q3
2001Q1
2001Q3
2002Q1
2003Q1
2003Q3
1997Q1
1997Q3
1998Q1
1998Q3
1999Q1
1999Q3
2000Q1
1994Q1
1994Q3
1995Q1
1995Q3
1996Q1
1996Q3
1985Q1
1987Q1
1989Q1
1991Q1
1993Q1
1993Q3
1975Q1
1977Q1
1979Q1
1981Q1
1983Q1
Government debt at exceptional levels
% of GDP
180
160
Excluding financial services intervention (% GDP)
Including financial services intervention (% GDP)
140
120
100
80
60
40
20
0
France and Germany more exposed to Greek
debt than the UK (as of December 2010)
0
10,000
20,000
France
Germany
UK
US
Government debt
Banking and private debt
Source: Bank for International Settlements
30,000
40,000
50,000
US$ mn
60,000
Financial services indicators
Measure
2007
2010
Foreign exchange
Daily average turnover
$3,324bn
$3,981bn
OTC derivatives
Daily average turnover
$1,686bn
$2,083bn
2007
August 2010
Turnover
LIFEE contracts
Daily average turnover
€1,781bn
€1,994bn
LME Futures and options
Daily average contracts
367,449
471,533
UK Government gilts
Annual turnover
£3,507bn
£3,888bn
UK equities (order book)
Annual turnover
£2,158bn
£1,018bn
2007
October 2010
Market capitalisation
UK companies
At year end
£2,130bn
£1,869bn
International companies
At year end
£2,293bn
£1,594bn
2007
December 2010
Indices
FTSE 100 index
At year end
6,457
5,996
Dow Jones Industrial
At year end
13,265
11,585
Source: Bank for International Settlements, London International Financial Futures and Options Exchange,
London Metal exchange and London Stock Exchange
Percentage of debt held abroad
UK Banks are International
International Positions of Banks
6000
5000
4000
3000
Total claims
2000
1000
0
France
Germany
Italy
Netherlands
Spain
Switzerland
UK
Japan
USA
Emerging
Markets
Services matter to London exports...
Sectoral Employment Data
Employment in London, 000s
800
700
600
500
400
300
200
100
0
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Information and Communication
Professional, Real Estate, Scientific and technical activities
Financial and insurance activities
Conclusion
• Financial services matter but have not been
the main job creator
• They do produce value, and taxes – not all the
activity is measured
• International asset management is going to
continue to matter – and to grow