UK: THE BANKS FIND THEIR BALANCE.

UK: THE BANKS FIND THEIR BALANCE. - The banks have abandoned their expansionist policies of the 1980s and are 'constructively shrinking'. Is this a fundamental change or just the next stage in the same old boom-and-bust banking cycle?

by Martin Vander Weyer.

The banks have abandoned their expansionist policies of the 1980s and are 'constructively shrinking'. Is this a fundamental change or just the next stage in the same old boom-and-bust banking cycle?

'I'm not worried whether the business is growing as fast as the capital base,' says Martin Taylor, chief executive of Barclays. 'If the capital base grows faster than the underlying business, we'll return some of the capital to the shareholders. I don't find that problematic. If you try to grow a business at a time when the market is trying to shrink, you just end up destroying capital.' The appointment of Taylor, the 42-year-old former chairman of Courtaulds Textiles and one-time Financial Times Lex columnist, was perhaps the most radical measure taken by any of Britain's high-street banks in the aftermath of a worldwide recession which called into question all the received wisdom of the financial world of the previous decade. The idea of constructive shrinkage - as expressed here by Taylor at Barclays and already partially put into practice by his opposite number, Sir Brian Pitman, at Lloyds Bank, where the balance sheet has shrunk by 30% - is a truly radical one, diametrically opposed to the expansionist machismo which led the mid-'80s generation of clearing bank bosses into such desperate difficulties. It is just one tenet of a creed of post-modern banking in which the driving force will be utility rather than ego: austerity, prudence and serious, long-term thinking have broken out all over the City.

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