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UK bank sector set to shrink

The UK banking sector will have to become smaller after the financial crisis because banks will be forced to hold more capital and safer assets according to the Bank of England’s monetary policy committee.

MPC external member David Miles said a smaller banking system would mean the economy would grow more slowly in the short-term, in a speech yesterday according to the Financial Times.

Miles said this would lead to lower savings, lower investment, lower house prices and less home ownership.

He said it would also force the Bank of England to set lower interest rates to compensate for the higher cost of funding that banks would face.

But Miles said that in the long run economic growth would be higher because a smaller banking system would reduce volatility.

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