These are issues for both prudential regulators and the competition authorities, working in tandem. If experience after the Great Depression is any  14  BIS Review 95/2010  guide, it seems likely that these structural issues will take centre-stage in the period ahead. References Akritidis, L (2007), “Improving the measurement of banking services in the UK National Accounts”, Economic and Labour Market Review 1(5), pp. 29–37. Alessandri, P and Haldane, A G (2009), Banking on the State, available at http://www.bankofengland.co.uk/publications/speeches/2009/speech409.pdf Bank of England (2009a), “The changing composition of the major UK banks’ regulatory capital”, Bank of England Financial Stability Report, June, pp. 26–27. Bank of England (2009b), The Role of Macroprudential Policy – A Discussion Paper, available at http://www.bankofengland.co.uk/publications/other/financialstability/roleofmacroprudentialpolicy 091121.pdf Berger, A, Herring, R and Szegö, G (1995), The Role of Capital in Financial Institutions, Journal of Banking and Finance Vol. 19(3–4), pp. 393–430. Billings, M and Capie, F (2004), “Evidence on competition in English commercial banking, 1920–1970”, Financial History Review Vol. 11. Billings, M and Capie, F (2007), “Capital in British banking, 1920–1970”, Business History, Vol. 49(2), pp. 139–162. Colangelo, A and Inklaar, R (2010), “Banking Sector Output Measurement in the Euro Area – A Modified Approach”, ECB Working Paper Series No. 1204, available at http://www.ecb.int/pub/pdf/scpwps/ecbwp1204.pdf Competition Commission (2005), Store Cards Market Inquiry: Provisional Findings Report, available at http://www.competitioncommission.org.uk/inquiries/completed/2006/storecard/provisional_findings.htm Feinstein, C H (1972), National Income, Expenditure and Output of the United Kingdom 1855–1965, Cambridge University Press.

Looking at the size of the largest firm’s assets in relation to GDP across a spectrum of industries, finance is by far the largest (Chart 22). The extent of balance sheet growth was, if anything, understated by banks’ reported assets. Accounting and regulatory policies permitted banks to place certain exposures off-balance sheet, including special purpose vehicles and contingent credit commitments. Even disclosures of on-balance sheet positions on derivatives disguised some information about banks’ contingent exposures. This rapid expansion of the balance sheet of the banking system was not accompanied by a commensurate increase in its equity base. Over the same 130 year period, the capital ratios of banks in the US and UK fell from around 15–25% at the start of the 20th century to around 5% at its end (Chart 23). In other words, on this metric measures of balance sheet leverage rose from around 4-times equity capital in the early part of the previous century to around 20 times capital at the end. If anything, the pressure to raise leverage increased further moving into this century. Measures of gearing rose sharply between 2000 and 2008 among the major global banks, other than US commercial banks which were subject to a leverage ratio constraint (Chart 24). Once adjustments are made to on- and off-balance sheet assets and capital to give a more comprehensive cross-country picture, levels of gearing are even more striking.