Archbishop's warning over economic 'depression'

It will take "something very, very major" to get the UK out of its economic "depression", the Archbishop of Canterbury has said.

A "severe" economic crisis and "a breakdown in confidence" made for "a generational problem", the Most Rev Justin Welby said.

"Recapitalising at least one of our major banks" and breaking it up into regional banks could help, he said.

He was speaking at a Bible Society-organised event at Westminster.

The former oil executive is on Parliament's banking standards commission and his comments come days before the release of gross domestic product figures that are expected to show the economy has stalled.

Archbishop Welby said that, in the past, "the great failures in banking have led to very, very long periods of recession at best".

"I would argue that what we are in at the moment is not a recession but essentially some kind of depression," he added.

"It therefore takes something very, very major to get us out of it, in the same way as it took something very major to get us into it."

'No horns or tails'

The Archbishop said no-one had all the answers to dealing with the crisis, but a key move to rebuild confidence would be making sure people could no longer "drift" into senior banking positions.

However, he said that during evidence sessions heard by the Parliamentary commission, he had found bankers were "not nearly as bad as one hoped that they would be".

"They do not come in with horns and a tail burning £50 notes to light large cigars," he said.

They had made two "slightly unsophisticated" errors, he said, which were to "borrow short and lend long" and to lend "very, very large amounts of money to people who could not pay them back".

"Those two errors alone are quite enough to bankrupt any bank," he said.

He added that, when banks became distant from the communities they served, problems were created, saying "at least part of the banking system should be local".

The BBC's Business Editor, Robert Peston, said the archbishop's suggestion for breaking up a big bank to create smaller, local banks would be pretty expensive for taxpayers, both because of the capital the UK would need to inject into such a bank, and because breaking it up would involve massive IT challenges.

However, there might actually be benefits for taxpayers and others shareholders in doing so, our correspondent added, because some banks had become too big and complicated to manage safely.

Meanwhile, Chancellor George Osborne told BBC Radio 4's Today programme the archbishop was right to underline that Britain was recovering from a "very deep banking crisis".

But asked if he agreed the country was going through a sort of economic depression, Mr Osborne replied: "I don't use that word."

He added: "I put the Archbishop of Canterbury onto the Banking Commission... and I agree with his analysis that we have a slow and difficult recovery because of the problems in the banking system - and those are the problems that need addressing."