A Crisis of the Financial Sector

Perhaps no group in the UK has been more vilified over the past few years than bankers. The crisis of confidence in their working practices has manifested itself in widespread disgust at the individuals in the sector who enriched themselves and dismay at the immense consequences of their actions during the boom. If there is an epicentre to a more general crisis of confidence in UK institutions addressed throughout this volume, it is perhaps the banks. Yet there is a paradox here. Any examination of the underlying phenomenon that produced this political response must recognise that the banking sector is structurally prone to crisis and that such crises are inherently reputational because banks depend on maintaining confidence. As James Stewart in the film It’s a Wonderful Life explains to panicking customers, ‘the money’s not here’. One person’s money is in another’s house and the citizens of Bedford Falls are lending each other the money to build homes and pay it back ‘as best they can’. Only if they all ‘have faith in each other’ can the bank work. Nonetheless, even allowing for the fact that banking crises happen with some frequency, the banking crisis that began in the UK in the summer of 2007 has been exceptional in its fallout. The crisis followed a period in which banking had been a central foundation of the UK economy’s growth for a decade and was also a significant component of a fiscal regime that had facilitated a sharp increase in the size of the public sector. These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.