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
News
people
Sport
FootballGerman sparks three goals in four minutes at favourite No 10 role
News
Rumer was diagnosed with bipolarity, attention deficit hyperactivity disorder and post-traumatic stress disorder: 'I was convinced it was a misdiagnosis'
peopleHer debut album caused her post-traumatic stress - how will she cope as she releases her third record?
Sport
A long jumper competes in the 80-to-84-year-old age division at the 2007 World Masters Championships
athletics
PROMOTED VIDEO
Sport
Radamel Falcao was forced to withdraw from the World Cup after undergoing surgery
premier leagueExclusive: Reds have agreement with Monaco
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvHe is only remaining member of original cast
Life and Style
Walking tall: unlike some, Donatella Versace showed a strong and vibrant collection
fashionAlexander Fury on the staid Italian clothing industry
Arts and Entertainment
Gregory Porter learnt about his father’s voice at his funeral
music
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
Life and Style
Children at the Leytonstone branch of the Homeless Children's Aid and Adoption Society tuck into their harvest festival gifts, in October 1936
food + drinkThe harvest festival is back, but forget cans of tuna and packets of instant mash
Sport
Lewis Hamilton will start the Singapore Grand Prix from pole, with Nico Rosberg second and Daniel Ricciardo third
F1... for floodlit Singapore Grand Prix
New Articles
i100
Life and Style
Couples have been having sex less in 2014, according to a new survey
life
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

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam