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

0

20

40

60

80

100

120

140

160

180

19

75

Q1

19

77

Q1

19

79

Q1

19

81

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83

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85

Q1

19

87

Q1

19

89

Q1

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91

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19

93

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19

93

Q3

19

94

Q1

19

94

Q3

19

95

Q1

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95

Q3

19

96

Q1

19

96

Q3

19

97

Q1

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97

Q3

19

98

Q1

19

98

Q3

19

99

Q1

19

99

Q3

20

00

Q1

20

00

Q3

20

01

Q1

20

01

Q3

20

02

Q1

20

03

Q1

20

03

Q3

20

04

Q1

20

04

Q3

20

05

Q1

20

06

Q4

20

07

Q4

20

08

Q3

20

09

Q1

20

09

Q3

20

10

Q1

20

10

Q4

20

11

Q2

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