One of the main areas of concern in markets in recent weeks has been the banking sector, both in the UK and overseas. However, we do not think that this pessimism about the UK’s banking sector is justified. For a start, we have pointed out before that UK banks’ exposures to China are still very small. Meanwhile, Sir John Vickers’ comments detract from the big picture that the health of the banking system has improved massively in recent years.
For now, it does not look as though the banking sector is set to trigger a renewed economic downturn in the UK. Indeed, bank lending growth has been recovering slowly but steadily since 2013 – and at a rather healthier pace than in the euro-zone, where concerns about the banking sector are arguably more justified.
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