This is Martin Wolf’s response* to Andrew G Haldane’s “Control rights (and wrongs)” Wincott Annual Memorial Lecture, on October 24, 2011
In this lecture, Andy Haldane, executive director for financial stability at the Bank of England, provides a compelling account of the development of western – above all British banking – over the past two centuries. He demonstrates the consequences of a progressive divorce between who controls the banks – shareholders and managers – and who bears most of the risks – society at large and, in particular, taxpayers.
Mr Haldane shows that each step along this road to ruin seemed reasonable, even inescapable. Yet the journey has ended up with over-leveraged behemoths that are too big to fail and, increasingly, too big to save.
Between one and a half and two centuries ago, it was common for equity to account for half of a bank’s funding and liquid securities to account for as much as 30 per cent of its assets. Financial sector assets accounted for less than 50 per cent of UK gross domestic product and the largest banks had assets of less than 5 per cent of GDP.
