Miliband outlines cap on bank size and new bank competition, but more must be done.
On Friday Labour leader Ed Miliband announced plans to break the monopoly of the big 5 UK banks, creating two new ‘challenger banks’ in a policy move designed to tap raw public anger following the banking crisis, recent scandals and continuing failure to tackle the toxic bank bonus culture.
Miliband’s speech was delivered at the University of London’s Senate House, the scene of recent student demonstrations, as the Financial Conduct Authority launched yet another banking inquiry — into allegations of systemic fraud by taxpayer owned RBS, this time involving the liquidation of struggling SME businesses for profit.
Labour’s calls for a market cap in retail banking and more competition in the sector are a welcome start: 2.4 million people switched accounts in 2012/13, and in September, 7-day switching made it even easier for customers to move their money.
The Payments Council this week released figures showing more of us than ever before are moving our money, with a 17% increase over the last 3 months, as compared with Q4 2012. But more must be done.
Relative to countries such as Germany with a strong regional banking network however, the UK is still dominated by large too big to fail banks, and lacks real competition and alternative banking models. As a major stakeholder in two of the UK’s largest banks, the government has a unique opportunity to make the banking sector serve society instead of continuing to serve itself.
In the UK, just 5 banks RBS, Lloyds, HSBC, Barclays and Santander enjoy 90% market share. [It’s also important to note the big 5 banks currently own the back-end payments system, effectively preventing new bank competition!].
In Germany by comparison, 2000 banks compete for 70% market share.
In public sector banking, the UK market is now even more consolidated, with the Cooperative Bank recently surrendering its market leading 35% share, leaving only the ‘big four’ of Lloyds, RBS, HSBC and Barclays to service hundreds of councils, housing associations, universities and NHS Trusts.
Labour’s bank policy announcement follows the November release of the Tomlinson Report, which outlined systemic fraud at state-owned RBS — accused of liquidating hundreds of distressed SME businesses for profit, via its Global Restructuring Group and West Register property arm, prompting Lawrence Tomlinson to publicly call for the break up of taxpayer owned RBS.
Miliband has already said he would like to usher in an era of regional/ local banking as a way of rebalancing the economy away from finance, and encouraging greater SME led growth outside London and the south-east, possibly by breaking up and re-tasking taxpayer owned RBS or Lloyds to lend to SME’s.
However, its important we do not fall into the trap of leaving financial reform solely in the hands of our elected politicians. While we wait for the important details of Labour’s ‘challenger banks’ to emerge, we should encourage citizen led bank reform by saying goodbye to high street casino banking, and supporting one of the many alternative banks that already exist.
In recent weeks we have seen signs that important bank reforms are being watered down, with the Basel 3 leverage ratios (loan exposure vs capital) quietly reduced to just 3%, barely above where they were in 2008 when the banks crashed.
The EU Basel retreat follows a recent speech by former Goldman Sachs banker, now Bank of England Governor Mark Carney, marking the 125th anniversary of the FT, where Carney openly called for further expansion of UK financial services sector to as much as 9x the size of UK GDP!
Faced with the evident failure of public officials to reign in the excesses of finance, citizens would be well informed to take matters into their own hands, moving our money to financial institutions that share our values, and using our money wisely to invest in a long-term sustainable and equitable future for us all.
Thankfully the Move Your Money bank switching scorecard has done the hard work in ranking 71 banks and building societies for you.
As we’ve witnessed from politicians rhetoric on bank reform in the years since the crisis, there’s a major difference between what politicians say in opposition, and actually do when, and indeed if, they are elected to power, walking the tightrope of pleasing party donors on one hand, and an increasingly fed up electorate on the other…
Don’t just sit around waiting for the politicians to act, make your own statement and Move Your Money today!
