The lunatics have taken over the asylum.

From the BBC:

The governor of the Bank of England has said the banking sector could double in size but still needs tough regulation.

He said: “If the UK financial system thrives in a post-Brexit world… it will be 15 to 20 times GDP in another quarter of century. Well then you really have to hold your nerve and keep the focus.”

What he is talking about is gross assets, not net assets. In other words, if you add up the ‘loans’ made by all individual banks in the UK, it adds up to something like £7 trillion (five times GDP). This is wildly exaggerated as two-thirds of that is inter-bank stuff and made-up figures.

So if all UK banks were to merge into one large bank, the gross lending to the non-financial sector is about £2 trillion (a tad more than one times GDP). If you then deduct all bank liabilities (mainly deposits but also bonds), the true net worth is pretty much close to zero (balancing figure between two large unknowns).

Nonetheless, doubling the gross lending and borrowing is a superbly shit idea.

He said: “We have a financial system that is [now] ten times the size of this economy… It brings many strengths, it brings a million jobs, it pays 11% of tax revenue, it is the biggest export industry by some token… all good things.

The million jobs is a made-up number. There is a minority with truly essential/irreducible jobs (staff at the bank counter, people who fill up cash machines and people who keep the software working, a few loan officers to check the bona fides of borrowers) and the rest are completely superfluous.

The “11% of tax revenue” is another made-up number. Most of what banks collect is just rent from the productive economy, they are not adding anything much to it. If they were to collect less rent, the amount of tax they pay goes down but people would have more money to spend on other stuff which would generate the same amount of tax. We might as well levy income tax on burglars and say that they pay 1% of tax revenue.

We could go further and deduct the value of the government guarantee for banks, which has been calculated as being approx. equal to the total amount of tax that banks pay.