Andrew Haldane, Executive Director for Financial Stability at the Bank of England, writes in the London Review of Books on the failures of financial sector governance
From unlimited liability partnerships in the early nineteenth century where the owners had every reason to guard the bank’s capital, to the overleveraged, too-big-to-fail banks of today where ownership and control has completely separated:
“The downside of this…is now only too clear. With leverage of two (UK banks in 1850), 50 per cent of your assets must go bad before your equity is wiped out and you go bust. But with leverage of twenty (UK banks in 2000), you will go bust if you lose only 5 per cent of your assets.”
See also: Lord Turner on financial regulation - “A group of very clever people…completely failed to address the fundamental issues”
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