Turning toxic again

Five years after the run on Northern Rock, four years after the epoch-making crash of Lehman Brothers, the clouds over Britain’s banking sector remain as dark as ever. We may have been the first country to recapitalise our banks when the crisis struck, but as the years have unfurled the sheer scale of the legacy of the ‘nice decade’ (1997-2007, ‘nice’ being the Bank of England governor Sir Mervyn King’s acronym for non-inflationary consistent expansion) has been revealed, and regulators have begun to wonder out loud whether further injections of capital may be needed before the repair job is completed.

It is often forgotten just how big a role the wider financial sector plays in Britain’s economy. When the International Monetary Fund made its annual inspection earlier this year, its economists noted that one reason for the UK’s lagging recovery was that the liabilities of the financial sector represented a whopping 500 per cent of GDP, against 80 per cent in the US.