Bank of England: exodus from the City 'is price worth paying'

Andy Haldane, the central bank's head of financial stability, said the crisis wrought on Britain's economy by the banks showed such a flight could actually help the country.

"Some of the downside of carrying around a big financial system is now evident to all. If some of that were to migrate overseas that would be unfortunate, but given the costs of carrying that financial system around, it may be a price worth paying," he said.

Bankers, who have become accustomed to attacks from vote-hunting politicians, today were appalled at the words from a supposedly independent central banker.

One senior official at a leading Canary Wharf investment bank said: "This is very, very dangerous talk. For God's sake, this is the Bank of England speaking.

"They have to be very, very careful. Banks in the City, and their staff, provide massive tax revenues for the country. The Bank should be talking about the need to rebalance the economy by boosting manufacturing and other areas, rather than trying to kill off banking."

He added: "In this past week, we've been suffering from a flood of calls to our staff from headhunters in the US trying to lure them away from the British political climate to American banks. It's extremely worrying and the government, central bankers and regulators should be cautious in what they say."

Another investment bank chief said: "I know there's a lot of cynicism when people start bandying words like "exodus" around.

Realistically, there won't be a huge flood of people leaving the country instantly. But it will happen slowly, silently. People will slip away."

Haldane's words came amid growing anger over the government's 50% tax on banks' bonus pools. Only yesterday it emerged Standard Chartered, HSBC and Barclays were believed to have rejected the government's calls for help raising private cash for its fund to invest in small businesses.

Sources at the firms cited the negative stance from Gordon Brown towards banks as being a key reason for their refusal to help out. David Buik, markets commentator at BGC Partners, said: "I profoundly disagree with Andy Haldane's comments. We need to protect the greatest jewel in the UK's crown, the City of London and its employees. Unfortunately I think the die is already cast. The surrender of regulation to Europe is the most profound thing to happen in the City for 25 years. That plus the constant, spiteful attacks on all the good parts of the City of London will lead to an inevitable erosion of our position as the leading financial centre of the world."

Haldane was speaking to the BBC World Service as the Bank's twice-yearly Financial Stability Report made it clear the recent stabilisation of the banking system owed little to the skill of bankers but was all to do with the reduction in competition.