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
PROMOTED VIDEO
Arts and Entertainment
glastonbury
News
i100
Arts and Entertainment
Shock of the news: Jake Gyllenhaal in ‘Nightcrawler’
filmReview: Gyllenhaal, in one of his finest performances, is funny, engaging and sinister all at once
Arts and Entertainment
Shelley Duvall stars in Stanley Kubrick's The Shining
filmCritic Kaleem Aftab picks his favourites for Halloween
News
people
Arts and Entertainment
Kit Harington has been given a huge pay rise to extend his contract as Jon Snow in Game of Thrones
tv
News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
Taste the difference: Nell Frizzell tucks into a fry-up in Jesse's cafe in east London
food + drinkHow a bike accident left one woman living in a distorted world in which spices smell of old socks and muesli tastes like pork fat
Sport
Luke Shaw’s performance in the derby will be key to how his Manchester United side get on
footballBeating City is vital part of life at United. This is first major test for Shaw, Di Maria and Falcao – it’s not a game to lose
Life and Style
Google's doodle celebrating Halloween 2014
tech
Arts and Entertainment
Don’t send in the clowns: masks and make-up conceal true facial expressions, thwarting our instinct to read people’s minds through their faces, as seen in ‘It’
filmThis Halloween, we ask what makes Ouija boards, demon dolls, and evil clowns so frightening?
News
peopleFarage challenges 'liberally biased' comedians to 'call him a narcissist'
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

Finance Assistant - Part time - 9 month FTC

£20000 - £23250 Per Annum pro rata: Clearwater People Solutions Ltd: Pro rata ...

Marketing Manager

£40 - 48k + Benefits: Guru Careers: We are seeking a Marketing Manager to join...

Market Risk Manager - Investment Banking - Mandarin Speaker

£45,000 - £65,000: Saxton Leigh: Our client is a well-known APAC Corporate and...

Compensation and Benefits Manager - Brentwood - Circa £60,000

£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

Day In a Page

The drugs revolution starts now as MPs agree its high time for change

The drugs revolution starts now as MPs agree its high time for change

Commons debate highlights growing cross-party consensus on softening UK drugs legislation, unchanged for 43 years
The camera is turned on tabloid editors in Richard Peppiatt's 'One Rogue Reporter'

Gotcha! The camera is turned on tabloid editors

Hugh Grant says Richard Peppiatt's 'One Rogue Reporter' documentary will highlight issues raised by Leveson
Fall of the Berlin Wall: It was thanks to Mikhail Gorbachev that this symbol of division fell

Fall of the Berlin Wall

It was thanks to Gorbachev that this symbol of division fell
Halloween 2014: What makes Ouija boards, demon dolls, and evil clowns so frightening?

What makes ouija boards and demon dolls scary?

Ouija boards, demon dolls, evil children and clowns are all classic tropes of horror, and this year’s Halloween releases feature them all. What makes them so frightening, decade after decade?
A safari in modern Britain: Rose Rouse reveals how her four-year tour of Harlesden taught her as much about the UK as it did about NW10

Rose Rouse's safari in modern Britain

Rouse decided to walk and talk with as many different people as possible in her neighbourhood of Harlesden and her experiences have been published in a new book
Welcome to my world of no smell and odd tastes: How a bike accident left one woman living with unwanted food mash-ups

'My world of no smell and odd tastes'

A head injury from a bicycle accident had the surprising effect of robbing Nell Frizzell of two of her senses

Matt Parker is proud of his square roots

The "stand-up mathematician" is using comedy nights to preach maths to big audiences
Paul Scholes column: Beating Manchester City is vital part of life at Manchester United. This is first major test for Luke Shaw, Angel Di Maria and Radamel Falcao – it’s not a game to lose

Paul Scholes column

Beating City is vital part of life at United. This is first major test for Shaw, Di Maria and Falcao – it’s not a game to lose
Frank Warren: Call me an old git, but I just can't see that there's a place for women’s boxing

Frank Warren column

Call me an old git, but I just can't see that there's a place for women’s boxing
Adrian Heath interview: Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room

Adrian Heath's American dream...

Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room
Simon Hart: Manchester City will rise again but they need to change their attitude

Manchester City will rise again but they need to change their attitude

Manuel Pellegrini’s side are too good to fail and derby allows them to start again, says Simon Hart
Isis in Syria: A general reveals the lack of communication with the US - and his country's awkward relationship with their allies-by-default

A Syrian general speaks

A senior officer of Bashar al-Assad’s regime talks to Robert Fisk about his army’s brutal struggle with Isis, in a dirty war whose challenges include widespread atrocities
‘A bit of a shock...’ Cambridge economist with Glasgow roots becomes Zambia’s acting President

‘A bit of a shock...’ Economist with Glasgow roots becomes Zambia’s acting President

Guy Scott's predecessor, Michael Sata, died in a London hospital this week after a lengthy illness
Fall of the Berlin Wall: History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War

Fall of the Berlin Wall

History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War
How to turn your mobile phone into easy money

Turn your mobile phone into easy money

There are 90 million unused mobiles in the UK, which would be worth £7bn if we cashed them in, says David Crookes