For years, the conventional thinking was that economies in which banking assets fell below the level of gross domestic product (GDP) were emerging whereas economies with banking assets two or three times the size of GDP were acknowledged as advanced.
That was before the crisis. Then it was brought home that economies with outsized banking assets relative to their economic weight could find themselves in trouble if things went wrong in the financial sector – think Iceland, Ireland and the UK. The stark choice was between letting the banks fail or bailing them out with state resources which, in the worst cases, has saddled not only the current generation of taxpayers with the bill but the next one too.
