The UK banking system could double from its current size to reach more than 950% of GDP by 2050, a paper from the Bank of England suggests.
As a result, its growth could far outstrip the projected increase in other G20 banking systems. In money terms, this would represent a rise in UK banking assets from over
£5 trillion to around £60 trillion.
According to the article, entitled Why is the UK banking system so big and is that a problem?, the UK banking system has grown dramatically over the past 40 years and, “under plausible assumptions”, it could continue to grow rapidly.
The reasons for this are that the UK already has a relatively large share of global banking assets and, as the size of the global financial sector increases, its share is likely to rise commensurately.
Today, the UK banking sector already consists of around 450% of nominal GDP on a residency basis, up from around 100% in 1975. The UK has the largest banking sector, on a residency basis, out of the US, Japan and the 10 largest EU countries.
Report authors Oliver Bush, Samuel Knott and Chris Peacock noted that alongside home-grown banks, foreign banks play a particularly significant role in the UK banking system. The UK hosts 150 deposit-taking foreign branches and 98 deposit-taking foreign subsidiaries from 56 different countries.
Addressing the issue of whether a large banking system is a threat to the UK economy, the paper said: “Evidence from the recent global crisis suggests that… banking system size was not a good predictor of the crisis. On the other hand, larger banking systems may impose higher direct fiscal costs on governments in crises.” It noted that it is the resilience of the banking sector, rather than its size, that is the most important factor influencing financial stability.