Leading UK banker Andrew G Haldane takes a somewhat similar view. Haldane is executive director of financial stability and a member of the Financial Policy Committee at the Bank of England.
From an August 18 speech, “Risk Off”:
Four years on from the start of the Great Recession, the world economy is cloaked in uncertainty. The story so far is well understood. Over-extension of private sector balance sheets – in particular among banks – sowed the seeds of the crisis.
Further into the piece, he elaborates further:
Since the start of the crisis, balance sheets have been a good news/bad news story. The good news is that balance sheet repair is underway in many sectors and countries. The bad news is that this process appears to be far from complete, providing a continuing strong headwind to risk-taking. Consider in turn the balance sheets of banks, households, companies and governments.
Pre-crisis, banks’ balance sheets were furthest out of kilter. Average leverage in the global banking system – the ratio of banks’ assets to their equity – rose to highs of over 40. At the height of the boom, every $1 of bank assets was financed with $98 cents of debt. The global banking system was financing itself with a 98 percent loan-to-value mortgage.
That was the debt that would have drowned the credit markets, had not the Federal Reserve intervened, in RepoWatch’s view.