UK financial system found to be least resilient in G7

The UK’s financial system is the least resilient of any economy in the G7, according to a report from the New Economics Foundation.

In a new analysis the UK comes last in five out of seven indicators of financial resilience, leaving it more susceptible to financial shocks than any other G7 state.

The study found the UK economy's resilience declined in the early 2000s and although it improved following the 2008 crisis it still lags significantly behind other leading economies.

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Tony Greenham, Head of Economy and Finance at the New Economics Foundation (NEF) said: “Without real structural reform, we remain extremely vulnerable to future financial storms. Yet even the limited progress made since 2008 now seems at risk of being unpicked by lobbying from the big banks.”

“Far from being done and dusted, banking reform is serious unfinished business for the new government and there can be absolutely no room for complacency.

“Decisions on banking policy, including the future of Government-owned RBS, must be measured against the yardstick of financial system resilience if we are to be serious about protecting the economy from financial shocks.”

Based on 2012 data, the NEF Financial Resilience Index scores the UK’s resilience at 0.27, with the US on 0.56, Canada 0.62, Italy 0.63, France 0.66, Japan 0.71 and Germany 0.73.

The seven key financial system resilience factors forming the analysis were diversity, interconnectedness and network structure, financial system size, asset composition, liability composition, complexity and transparency; and leverage.

The report scored the UK last in terms of diversity, interconnectedness, financial system size, asset composition and complexity, and transparency.

The report says: “It is vital that policymakers develop a more sophisticated understanding of resilience and use it to help reshape our financial system. Unless this is achieved, our economy and society remain at risk of a future financial crisis.”

The report recommends separating retail from investment banking, promoting bank diversity rather than simply more ‘lookalike’ challenger banks and making efforts to increase peer-to-peer lending to increase the resilience of the financial system.