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Do Banks Matter
Bridget RosewellVolterra 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
Government debt at exceptional levels
Source: Public Finances First Release, ONS
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Excluding financial services intervention (% GDP)Including financial services intervention (% GDP)
% of GDP
France and Germany more exposed to Greek debt than the UK (as of December 2010)
Source: Bank for International Settlements
0 10,000 20,000 30,000 40,000 50,000 60,000
France
Germany
UK
US
Government debt Banking and private debt
US$ mn
Financial services indicators
Source: Bank for International Settlements, London International Financial Futures and Options Exchange, London Metal exchange and London Stock Exchange
Measure 2007 2010
Foreign exchange Daily average turnover $3,324bn $3,981bn
OTC derivatives Daily average turnover $1,686bn $2,083bn
Turnover 2007 August 2010
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
Market capitalisation 2007 October 2010
UK companies At year end £2,130bn £1,869bn
International companies At year end £2,293bn £1,594bn
Indices 2007 December 2010
FTSE 100 index At year end 6,457 5,996
Dow Jones Industrial At year end 13,265 11,585
Percentage of debt held abroad
UK Banks are International
Services matter to London exports...
Sectoral Employment Data
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