A couple of wine bars have closed their doors, restaurants have a few free tables at lunchtime and the fancy jewellers now buy gold from their customers as well as sell it.
But, while it may feel slightly subdued, things are quickly getting back to what the City views as normal.
Despite government huffing and puffing, a hiring frenzy has seen some bankers secure two year guaranteed bonus deals.
This week’s attempted takeover of British chocolate maker Cadbury by American Kraft Foods has seen idle merger & acquisition specialists dust off their spreadsheets in the hope that good times are back. But is such a return to normality desirable?
Lord Adair Turner, chairman of the Financial Services Authority, which regulates the Square Mile, thinks not. The sector has become “bloated”, he said, suggesting a tax on financial transactions.
This hasn’t gone down well in the financial world. Richard Lambert, director general of the Confederation of British Industry, denied it is “some bloated excrescence throwing the whole UK economy out
of balance”.
You can see his point. Looking at one measure, the financial services contributes about 7% of gross value added to the wider economy, according to official figures.
Even adding in ancillary trades such as IT, accounting and legal services -- not forgetting expensive sandwich shops and fancy bars -- the idea that banking is to the UK what oil is to Saudi Arabia doesn’t stack up.
At the peak of the boom in 2007, financial services accounted for 8.3% of output having crept up from 5.2% in 2000. That looks like a big gain but glance back to the early 1990s and financial services was still between 6% and 7% of the economy. In 1985 it was 9.8%.
That’s not to play down its importance. Some one million people work in financial services, according to the UK government. The CBI says 70% of these jobs are outside London and are better paid than the average. Scottish Financial Enterprise calculates 90,000 of the roles are in Scotland, with the same number of people supporting the sector.
Peter Bickley, director of economics at Deutsche Bank Private Wealth Management, told The Herald: “If an economy develops a particular skill and that skill set happens to become its largest single generator of activity and profits that is probably quite a good thing. I think it is a real mistake to react to all this horrible stuff by saying this is a terrible bad thing.”
The government agrees. Chancellor of the Exchequer Alistair Darling said: “When I hear people say ‘let’s cut it down in size’, I think that is the wrong approach.”
It is clear financial services continue to play an important role aiding the rest of the economy. Owen Kelly, chief executive of Scottish Financial Enterprise, told The Herald: “Financial services is the enabler to allow economic growth to proceed both at the personal level and the company level. It allows people in business to plan their lives and to make decisions and balance the demands of today against the demands and opportunities of tomorrow.”
Even the very financial innovations that contributed to the credit crisis have changed our lives in positive ways. Selling on mortgages meant that banks could lend to more people, cutting the level of deposit people needed to get a loan and helping spread home ownership.
The fact that irresponsible 125% mortgages and bank reliance on short term money markets took these developments to an extreme shouldn’t overshadow that.
Derivatives, one of the dirtiest words in the financial lexicon, help responsible companies hedge their exposure to currency movements and fuel price changes.
But it is this very centrality to the economy that makes financial services so potentially dangerous.
Bickley said any country would suffer if a key sector had trouble: “If our biggest national strength was widget-making and widget-making went through a bad year we would be totally stuffed.”
But at its peak Royal Bank of Scotland had £1.9 trillion of assets. It was almost one-and-a-half times the size of the UK economy and its fall would have been catastrophic.
As Gordon Brown said last year: “In extraordinary times, with financial markets ceasing to work, the government cannot just leave people on their own to be buffeted about.”
The issue, said Adam Lent, head of the economic and social affairs department at the Trades Union Congress (TUC), was that the financial services industry had a “surprising amount of influence”.
While banks took riskier and riskier bets, the focus of the UK financial regulator was on lightening the regulatory under the guise of “principles-based regulation”, he said.
The meeting of G20 nations last week secured agreement on three key points that will tighten this up: banks must raise much more capital once the financial crisis has passed; complex financial institutions should develop “living wills” to plan for their unwinding; and banks should be made to retain some portion of loans sold on to investors.
But it still leaves the UK with a problem. If the City is not too big, there is a good argument that other areas of the economy are too small.
In a speech yesterday, Darling pointed to advanced manufacturing, digital communications, biotechnology and the creative industries as the future of the UK economy.
The big challenge for the government is to harness the financial services sector to provide funding to industries that have hitherto been starved of investment.
As Lent says: “How do we move away from a City based on a short-term, very high returns approach to one based on long-term investment in technological development and research?”
It’s not the size of the financial services industry that should concern us, but how it can be directed to benefit the rest of the economy.
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