Can you cap the banks? Our writers make the case for and against Labour leader Ed Miliband's plans to limit their market share


It happened with energy prices, and now it's happened with banks. Every time Ed Miliband comes up with a policy that crimps the free market's tendency to behave like a monopoly, big business goes apoplectic and the left wave their Socialist Worker banners in delight.

His plan to limit the market share of UK banks, set to be fleshed out on Friday, created the usual reactions.

Corporate cheerleaders like the former Chancellor Lord Lawson said it was wrong to curb the private sector. That there is already enough competition among the high street banks. Sir Philip Hampton, chairman of the Royal Bank of Scotland (itself, of course, one of the big banks) rather predictably agreed.

However, similar rules to those expected to be proposed by the Labour leader are already in operation in the US, where customer service is said to be good, so we decided to pit our New York correspondent, a lover of the American way, against our UK banking reporter by asking them the question: 'could Ed's plan make Britain better?'.

Mark McSherry: Yes, we should learn from our past mistakes

A bird in the hand is worth two in the bush – that would appear to be the philosophy of many Americans when it comes to dealing with banks.

While millions of consumers in the United States trust their incomes and savings with massive financial institutions, many still prefer to deal with local community banks. Last month the Bank of Bird-in-Hand in rural Pennsylvania, supported by Amish investors, opened its doors, having raised roughly $17m (£10m) in capital and having been approved by regulators that include the United States' Federal Deposit Insurance Corporation.

It was the first new bank to be opened in the United States in almost three years. It made the news.

As a general rule, US banks are not allowed to grow above 10 per cent of nationwide deposits through acquisitions, but are allowed to grow above that level if they do it organically, under their own steam, said Brad Hintz, an analyst at Sanford Bernstein.

"It makes it impossible for the biggest banks to go out and acquire a regional bank and take their market share up dramatically by that," he adds. Wells Fargo, Bank of America and JPMorgan have been able to grow their deposits slightly above 10 per cent organically but consolidation in the US still has a long, long way to go until it gets to the British situation.

Anyone who believes there will not be financial crises in the future is delusional. When the next crisis happens, would it make any sense if a handful of UK banks control three-quarters of Britons' deposits? Of course it wouldn't.

To the big shots in the City of London, it might seem a bit backward for so many tiny community banks to exist in the US. Well, maybe Britain can learn from these people in rural America. And maybe more Brits need to learn the valuable lesson of "once bitten, twice shy".

Nick Goodway: No, they will almost certainly shed the poorest customers

"They would say that, wouldn't they?" is the obvious reaction to the banks' angry response to Labour's plans to force a greater break-up of their market.

Ed Miliband is, quite rightly, attacking an industry which is still widely despised and hated. He is uncertain as to what the market share cap should be or indeed of which market. If, as his advisers have been guiding, he is not looking at 25 per cent, or current accounts, mortgages or branches, it could be only taxpayer-controlled RBS which is actually caught in his net. We'll find out more on Friday, perhaps.

Having more players does not always mean more competition. There have been four big supermarkets in this country for years and there is no shortage of competition between them.

But as Labour finalises its policies it should look out for unintended consequences.

Forcing banks to cap how many customers they can have would almost certainly mean they shed the poorest. That could see Labour actually increase the proportion of "unbankable" consumers, in turn, driving more people into the arms of loan sharks and payday lenders.

Also, privately, bankers say they want fewer branches, not more and are happy to shed bricks and mortar as banking is increasingly done online.

The practical side of selling off branches should not be overlooked either. Both Lloyds and RBS struggled to try to sell their branches as ordered by the EU for receiving state aid. Both ended up with compromise agreements in TSB and Williams & Glyn's. And don't underestimate the biggest glitch factor of any sell-off : the banks' antiquated IT systems.

Finally, banks could simply respond to tough market-share rules by ending their current "free banking, if in credit" current accounts. That hardly looks a vote winner.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
Angel Di Maria is shown the red card
Roger Federer after his win over Tomas Berdych
Life and Style
News in briefs: big pants in 'Bridget Jones's Diary'
fashionBig knickers are back
James Milner is set to sign for Liverpool this week despite rival interest from Arsenal
sportReds baulk at Benteke £32.5m release clause
The controversial Motor Neurone Disease Association poster, featuring sufferer Michael Smith, has drawn a series of angry complaints
newsThis one has been criticised for its 'threatening tone'
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Guru Careers: Communications Exec / PR Exec

£25 - £30K: Guru Careers: We are seeking a highly-motivated and ambitious Comm...

Day In a Page

On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific
In this the person to restore our trust in the banks?

In this the person to restore our trust in the banks?

Dame Colette Bowe - interview
When do the creative juices dry up?

When do the creative juices dry up?

David Lodge thinks he knows
The 'Cher moment' happening across fashion just now

Fashion's Cher moment

Ageing beauty will always be more classy than all that booty
Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination

Health fears over school cancer jab

Shock new Freedom of Information figures show how thousands of girls have suffered serious symptoms after routine HPV injection
Fifa President Sepp Blatter warns his opponents: 'I forgive everyone, but I don't forget'

'I forgive everyone, but I don't forget'

Fifa president Sepp Blatter issues defiant warning to opponents
Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report

Weather warning

Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report
LSD: Speaking to volunteer users of the drug as trials get underway to see if it cures depression and addiction

High hopes for LSD

Meet the volunteer users helping to see if it cures depression and addiction
German soldier who died fighting for UK in Battle of Waterloo should be removed from museum display and given dignified funeral, say historians

Saving Private Brandt

A Belgian museum's display of the skeleton of a soldier killed at Waterloo prompts calls for him to be given a dignified funeral