What is efficiency? What makes a cost an unnecessary cost that should be cut? Should this extend to opportunity costs? These are questions that will become increasingly important in tough economic times for many kinds of business and there will be many arguments about what can happen if the drive for cost efficiency is pushed too far.

Two recent pieces of evidence illustrate the dangers of running a business engine at its fullest throttle. When HBoS announced this week its plan to raise £11.5bn ($18.2bn) of new capital it also said it had taken extra writedowns in the third quarter that almost doubled its write downs for the year so far. Most of this increase came from a doubling of the losses taken in its Treasury operations – from £1.9bn to £3.8bn.These losses come from using the money in the part of its operations meant to manage a bank’s liquidity and liabilities to invest in higher yielding assets than traditionally was the case. In recent years this increasingly meant buying highly-rated structured products such as mortgage backed bonds and collateralised debt obligations.