Cyprus? There but for the grace of God goes Britain

Ben Chu

There’s been a lot of head shaking in recent days about the size of Cyprus’ banking sector relative to its economy.

And it is indeed grossly inflated with assets and liabilities at around €126bn, or 700% of the island’s GDP.

If you have a banking sector that size you’re asking for trouble – for how can a state guarantee for depositors be credible? If the banks go under the state wouldn’t be able to rescue the savers.

How foolish.

Yet we’ve nothing to be smug about here in Britain.

This chart (below) from Albert Gallo, an analyst at RBS, shows that we’re not that far behind. Despite all the deleveraging of recent years our banking sector still has assets and liabilities equal to 450% of our GDP.

Remember this next time you hear from one of the banking industry lobbyists how vital it is for the UK’s economic future to have a massive banking sector. Remember Cyprus.

RBS Cyrpus1 Cyprus? There but for the grace of God goes Britain

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  • harry hart

    Interesting puzzle trying to work out which countries are represented by the two letter codes on the bar chart.

  • Chris Panton

    Ireland, Cyprus, UK, Estonia, Spain, Portugal, Italy, Greece

  • desertratinwales

    If anyone can answer…ok, UK listed there along with some countries whose economies have pretty much gone to hell in a handbasket. But what about the economies that are still holding up ok? Germany, Sweden, Norway, Austria etc etc. What are their banking assets and liabilities incomparison to their GDP? Cause this just makes it totally look like the UK is doomed down the same road. And what about Iceland? They had a similar problem, but didn’t bail out the banks and arrested some of the banksters instead. A route I think others should have followed over continuing to pander to the banks.

  • Ben Russell-Gough

    Bottom line is that they’re not “too big to fail”, they’re “too big to be allowed to survive”. The only way forward is the forcible divorce of the retail and investment bank sectors and to drive the investment bank sector abroad where it can’t damage the British economy. Yeah, I know, and pigs might be genetically engineered to grow wings!

  • 12758

    This the diagram of financial sector debt from a couple of years ago. Iceland had a similarly large financial sector debt.

  • julianzzz

    If that’s banking success, then they can keep it! Thank God, that we have also followed the example of the Germans and through the EU have become a very successful car making nation.

  • 1FrancisofAssissi1

    Interesting chart …

    BUT …

    I don’t understand … how come Switzerland, which is known as the world’s bank, has such small liabilities compared to GDP??

  • 12758

    Switzerland has a very large manufacturing industry. It employs 23% of the workforce compared with 8% in the UK. Precision engineering (watches and high tech equipment), pharmaceuticals, food manufacture (Nestlé) and chemicals are very large. The financial sector make up about 12% of GDP and employs about 5.6% of the workforce.

    Also in the UK banks are effectively free to create as much debt as they like, this is not the case in Switzerland. When you privatise the creation on money in the form of debt as is the case in the UK you shouldn’t be surprised when banks get addicted to it.

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