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
News
Young Winstone: His ‘tough-guy’ image is a misconception
people
Sport
Adnan Januzaj and Gareth Bale
footballManchester United set to loan out Januzaj to make room for Bale - if a move for the Welshman firms up
Arts and Entertainment
British actor Idris Elba is also a DJ and rapper who played Ibiza last summer
filmIdris Elba responds to James Bond rumours on Twitter
Arts and Entertainment
Ellie Levenson’s The Election book demystifies politics for children
bookNew children's book primes the next generation for politics
PROMOTED VIDEO
Sport
Wayne Rooney warms up ahead of the English Premier League football match between Tottenham Hotspur and Manchester United at White Hart Lane
football
News
Outspoken: Alexander Fury, John Rentoul, Ellen E Jones and Katy Guest
newsFrom the Scottish referendum to the Ice Bucket Challenge, our writers voice their opinions
Arts and Entertainment
Lena Headey as Cersei Lannister in Game of Thrones
film
News
i100
Sport
Yaya Sanogo, Mats Hummels, Troy Deeney and Adnan Januzaj
footballMost Premier League sides are after a striker, but here's a full run down of the ins and outs that could happen over the next month
News
Nigel Farage celebrates with a pint after early local election results in the Hoy and Helmet pub in South Benfleet in Essex
peopleHe has shaped British politics 'for good or ill'
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Sport
Tim Sherwood raises his hand after the 1-0 victory over Stoke
footballFormer Tottenham boss leads list of candidates to replace Neil Warnock
Voices
Strictly Come Dancing was watched by 6.9m viewers
voicesIt has been hard to form generally accepted cultural standards since the middle of the 19th century – and the disintegration is only going to accelerate, says DJ Taylor
Arts and Entertainment
Roffey says: 'All of us carry shame and taboo around about our sexuality. But I was determined not to let shame stop me writing my memoir.'
books
News
Danielle George is both science professor and presenter
people
News
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

War with Isis: The West needs more than a White Knight

The West needs more than a White Knight

Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

'The day I was shot by the Taliban'

Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
Revealed: the best and worst airlines for delays

Revealed: the best and worst airlines for delays

Many flyers are failing to claim compensation to which they are entitled, a new survey has found
The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

The stories that defined 2014

From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

Disaster looming? Now you know where to head...

Which British city has become the first to be awarded special 'resilience' status by the UN?
Finally, a diet that works: Californian pastor's wildly popular Daniel Plan has seen his congregation greatly reduced

Finally, a diet that works

Californian pastor's wildly popular Daniel Plan has seen his congregation greatly reduced
Say it with... lyrics: The power of song was never greater, according to our internet searches

Say it with... lyrics

The power of song was never greater, according to our internet searches
Professor Danielle George: On a mission to bring back the art of 'thinkering'

The joys of 'thinkering'

Professor Danielle George on why we have to nurture tomorrow's scientists today
Monique Roffey: The author on father figures, the nation's narcissism and New Year reflections

Monique Roffey interview

The author on father figures, the nation's narcissism and New Year reflections
Introducing my anti-heroes of 2014

Introducing my anti-heroes of 2014

Their outrageousness and originality makes the world a bit more interesting, says Ellen E Jones
DJ Taylor: Good taste? It's all a matter of timing...

Good taste? It's all a matter of timing...

It has been hard to form generally accepted cultural standards since the middle of the 19th century – and the disintegration is only going to accelerate, says DJ Taylor
Olivia Jacobs & Ben Caplan: 'Ben thought the play was called 'Christian Love'. It was 'Christie in Love' - about a necrophiliac serial killer'

How we met

Olivia Jacobs and Ben Caplan
Bill Granger recipes: Our chef's breakfasts will revitalise you in time for the New Year

Bill Granger's healthy breakfasts

Our chef's healthy recipes are perfect if you've overindulged during the festive season
Transfer guide: From Arsenal to West Ham - what does your club need in the January transfer window?

Who does your club need in the transfer window?

Most Premier League sides are after a striker, but here's a full run down of the ins and outs that could happen over the next month
The Last Word: From aliens at FA to yak’s milk in the Tour, here’s to 2015

Michael Calvin's Last Word

From aliens at FA to yak’s milk in the Tour, here’s to 2015