Do Banks Matter Bridget Rosewell Volterra 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

France and Germany more exposed to Greek debt than the UK (as of December 2010) Source: Bank for International Settlements

Financial services indicators Source: Bank for International Settlements, London International Financial Futures and Options Exchange, London Metal exchange and London Stock Exchange Measure Foreign exchangeDaily average turnover$3,324bn$3,981bn OTC derivativesDaily average turnover$1,686bn$2,083bn Turnover 2007August 2010 LIFEE contractsDaily average turnover€1,781bn€1,994bn LME Futures and optionsDaily average contracts367,449471,533 UK Government giltsAnnual turnover£3,507bn£3,888bn UK equities (order book)Annual turnover£2,158bn£1,018bn Market capitalisation 2007October 2010 UK companiesAt year end£2,130bn£1,869bn International companiesAt year end£2,293bn£1,594bn Indices 2007December 2010 FTSE 100 indexAt year end6,4575,996 Dow Jones IndustrialAt year end13,26511,585

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