The UK banking system is set to double from its current size to more than 950% of UK GDP by 2050 or about £60 trillion, far outstripping projected increases in other Group of 20 nations, the Bank of England (BoE) said in a recently released research report.
Allaying the concerns raised by some analysts that large banking sectors are dangerous, the BoE in its quarterly bulletin said there is not a strong link between size and the probability or cost of a big financial meltdown.
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In an article, the BoE said: "The empirical analysis in this article does not find a strong link between banking system size and the probability or output cost of a crisis, at least once the resilience of the system is taken into account."
The article says that high levels of indebtedness at banks and periods of strong credit growth were stronger indicators of impending crises. However, the fiscal costs of a crisis can be higher if a country has a large banking sector.
"While size can be important, it is the resilience of the banking system that is key for financial stability," the paper concluded.
