Credit crisis cost the nation £7trn, says Bank of England

Bank director criticises current regulation and calls for structural reform

The financial crisis has cost the British economy up to £7.4trillion in lost output, according to the Bank of England.

Andrew Haldane, the Bank's executive director for financial stability, said that taking into account the permanent damage done to the productive potential of nations across the world, as well as the immediate costs of supporting the banks and the recession, there is an output loss equivalent to between $60trn and $200trn for the world economy and between £1.8trn and £7.4trn for the UK.

He put the hidden cost to the taxpayer of the implicit support offered to the big UK banks at more than £50bn.

Mr Haldane advocated new structural controls on the banks, a policy at odds with the current views of Lord Turner, chairman of the Financial Services Authority, and the Treasury.

Mr Haldane drew a contrast between the "taxation" solution – making risky banking more expensive by raising capital requirements, an idea favoured by the FSA and the Government – and the "prohibition solution", backed by the Bank and the Obama administration in the US. Prohibition means the separation of bank activities across business lines.

Referring to the most famous piece of legislation that broke up the banks, Mr Haldane drew a positive comparison between the US Glass-Steagall Act of 1933 and the modern Basel II international capital regime. He said: "Glass-Steagall was simple in its objectives and execution. The Act itself was only 17 pages long... lasting well over half a century without a significant systemic event in the US. The contrast with Basel II is striking. This was anything but simple, comprising many thousands of pages and taking 15 years to deliver... [and was]... overwhelmed by the recent crisis scarcely after it had been introduced."

Mr Haldane, echoing the Bank's Governor, Mervyn King, dismissed claims made about the importance of economies of scale. He said the experience of the crisis was that larger, more diversified banks had suffered "proportionally greater losses".

He added: "Limits on the optimal size and scope of firms may be as much neurological as technological... this crisis has provided many examples of failures rooted in an exaggerated sense of knowledge and control. Risks and counterparty relationships outstripped banks' ability to manage them."

The Bank is calling for reforms in line with Liberal Democrat and Conservative proposals, in opposition to government policy. The Chancellor, Alistair Darling, this week again stressed the need for a co-ordinated G20 approach to "too big to fail".

In a final assault on the FSA, Mr Haldane concluded: "It is possible that no amount of capital or liquidity may ever be quite enough. Profit incentives may place risk one step beyond regulation. That means banking reform may need to look beyond regulation to the underlying structure of finance."

Voices
On the last day of campaigning before the polling booths open, the SNP leader has written to voters in a final attempt to convince them to vote for independence
voicesIs a huge gamble on oil keeping the First Minister up at night?
Arts and Entertainment
Rosalind Buckland, the inspiration for Cider with Rosie died this week
booksBut what is it like to be the person who inspires a classic work of art?
Life and Style
techApple has just launched its latest mobile operating software – so what should you do first?
News
A male driver reverses his Vauxhall Astra from a tow truck
newsThe 'extremely dangerous' attempt to avoid being impounded has been heavily criticised
PROMOTED VIDEO
Arts and Entertainment
Lionel Messi in action for Barcelona
filmWhat makes the little man tick?
Arts and Entertainment
tvReview: An undercooked end (spoiler alert)
News
i100
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Pharrell dismissed the controversy surrounding
musicThe singer said 'the last thing I want to do is degrade'
Sport
Cesc Fabregas celebrates his first Chelsea goal
footballChelsea vs Schalke match report
Arts and Entertainment
Toby Jones (left) and Mackenzie Crook in BBC4’s new comedy The Detectorists
tvMackenzie Crook's 'Detectorists' makes hobby look 'dysfunctional'
Life and Style
fashion

Olympic diver has made his modelling debut for Adidas

News
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant Birmingham

£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Recruitment Consultant - Soho - IT, Pharma, Public Sector

£20000 - £25000 per annum + OTE £35,000 first year: SThree: The SThree group i...

Sales Executive

£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week