Is the banking system fixed? Two recent developments suggest not. One is the complaint that banks haven’t passed on the recent rate rise to savers – which suggests that the industry isn’t yet so competitive as to give customers good deals. The other is that bank share prices have fallen in response to Turkey’s financial crisis: the sector is down almost 9 per cent from its May peak while the All-Share index has fallen only 1.5 per cent. This implies that UK banks’ exposures to global risks – albeit indirectly via loans to other banks which have lent to Turkey – are still significant.
Of course, there have been improvements since the 2008 crisis. Banks are no longer so reliant upon interbank markets. As the Bank of England’s Jon Cunliffe has described, the Bank now has better ways of coping with failed banks. And banks are better capitalised; the Bank of England estimates that they have seven times as much capital as they had in 2008 and that their capital now accounts for 17 per cent of their risk-weighted assets.
Partly as a result of this better capitalisation, the implicit subsidy to banks (their ability to borrow at low rates because of the belief the government will bail them out if needed) has fallen. The Bank estimates it is now around £5bn compared to £45bn in 2010.