By Oliver Bush of the Bank’s Macroprudential Strategy and Support Division, Samuel Knott of the Bank’s Stress Testing and Strategy Division and Chris Peacock of the Prudential Regulation Authority’s International Banks Supervision Directorate.
Over the past 40 years the size of the UK banking system has grown dramatically and under plausible assumptions it could continue to grow rapidly. This article examines a number of issues related to the size of the UK banking system, including why it is so big and what empirical evidence tells us about the relationship between banking system size and financial stability. This evidence suggests that while size can be important, it is the resilience of the banking system that is key for financial stability.
Why is the UK banking system so big and is that a problem?