Simon English: The real problem with our banks? Too fast, too competitive


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The Independent Online

Outlook Do we want more competition in banking? John Fingleton at the Office of Fair Trading thinks so. The banks must do better for customers, or he'll sort them right out (he imagines).

We've been here before, what seems like scores of times. Certainly, the market for investigations into competition in banking is red hot.

Don Cruickshank, the bloke who made everyone panic about what turned out to be the near-non-existent millennium computer bug, had a crack about 12 years ago.

He said banks were bad, but nothing much happened. It was midnight on New Year's Eve 1999 all over again.

They knighted Mr Cruickshank in 2006, just as the seeds of the credit crunch he entirely failed to foresee were being watered.

There have been several investigations since, but they have changed little.

"For too long, competition in the banking system has not functioned well," says mr Fingleton.

The OFT boss is one of thegroup-think crowd that imagines competition to be the answer to everything and its absence to be a human tragedy.

He's just wrong. For most people, for most of the important things in life – health, housing, education – one choice that mostly works would be perfectly good enough. Indeed it would often be an improvement.

When it comes to banking, it seems perfectly possible to argue that what we really need is less competition rather than more.

Banks overcharging for overdrafts its irksome but where they really do for us is when they get big and go bust.

Northern Rock didn't get into trouble because it lacked entrepreneurial drive. It turned into a disaster for the rest of us because it was borrowing like fury on the money markets to offer 125 per cent mortgages to unsuitable borrowers. It was way too competitive.

The problem with finance is generally is that it is far too efficient, far too fast.

So a crisis in New York or Hong Kong hits London in about three seconds. If there were a way of slowing money down, we could all prepare much more easily for its sudden ebbs and flows.

James Tobin, the 1981 Nobel laureate behind the financial transactions tax that is named after him, proposed this levy precisely to "throw some sand in the wheels of our excessively efficient international money markets". His point was that fast finance makes it hard for companies to grow gradually, sensibly. They must move apace, or the money will seek other homes.

If you're a simple account holder – the area where Mr Fingleton intends to focus his inquiry – our banks really aren't so bad. (Try banking abroad for a bit if you don't believe me. American banks suck. All of them.)

So let's advise mr Fingleton of how little we really expect from our banks. Just that the ATMs work and that the banks don't go bust at our expense. If they need to collude on fees a little to prevent another financial crisis, well, we'll live with that too.

Banking should not be fashionable. It need not be dynamic. Mr Fingleton wants to make our banks interesting. He has it upside down. As boring as possible, so dull we don't even notice them, would surely be a relief to everyone.