COLUMNISTS The UK government looks increasingly like a python that has swallowed a hippopotamus. In acting as insurer of last resort to the British-based banking system, it is taking on huge risks on behalf of taxpayers. If this turned out to be a global depression, with huge losses for British-based banks, fiscal solvency might even come into question. Can this make sense? I doubt it.
At the end of last year, total assets of the British-based banking system were £7,919bn ($11,188bn, €8,908bn) or 5.5 times gross domestic product. These aggregate assets increased by £956bn between the end of 2007 and the end of 2008 and by £4,493bn, or by 130 per cent, between the end of 2001 and the end of 2008. Royal Bank of Scotland alone accounted for 45 per cent of this latter increase. At the end of last year, RBS had the largest assets of any British bank, at 166 per cent of GDP. These asset positions are enormous. It should be noted, however, that they include gross derivatives positions (which is not the case under US accounting). Net derivatives exposures were far smaller.
