Britain may need to cap the size of banks or fully separate their retail and investment operations to curb the risks “King Kong” lenders pose to the financial system, according to Andrew Haldane.
Mr Haldane, the Bank of England’s director of financial stability, said tackling “too-big-to-fail” banking is essential to end the implicit funding subsidies big lenders receive from markets betting that no government will allow them to collapse.
From 2002 to 2007, the implied annual subsidy to the world’s biggest banks averaged $70bn a year, roughly half of average post-tax profits, and this could balloon to around $300bn, he said.
“Subtracting this subsidy, removing the state crutch, would suggest a dramatically lower socially optimal banking scale. Like King Kong and Godzilla, these giants would arguably then be physiological impossibilities,” Mr Haldane said.