When most companies announce that they are shedding 19,000 jobs the response is uproar. Yet when Barclays said last week that was the number of jobs it planned to cut over the next three years there was barely a ripple of opposition.
Thus George Osborne said that any job loss was "regrettable" but that Barclays was "seeking to build a bank that is focused on its customers, and of course, that means some changes". From Labour, as far as I can find, there has not been a peep. So what's up? The muted response is a sign of a simple hostility towards an entire industry, which for a number of reasons is running more strongly in Britain than in other developed countries.
But more interesting than the response are the reasons behind the losses, because what is happening at Barclays is an example of a much wider trend across banking in the developed world. I can think of at least seven forces at work. Some words about each.
The first and over-arching one goes by the ugly word "disintermediation". For the past half-century or so, until the crash of 2008, banks gradually grew in importance as financial intermediaries. Until the 1970s you could not get a medium-term loan from a bank; you borrowed on overdraft which theoretically had to be repaid on demand. The inter-bank and syndicated loan markets were in their infancy. So companies wanting long-term funds had to find them some other way, either from retained profits or by going to the stock market. Individuals could borrow on a mortgage but from a building society, not a bank.
That is now being reversed. We are not back to the 1970s by any means, partly because you can't uninvent a financial system but also a well-managed banking system is much more supportive of growth. But we, along with other developed countries, are having to learn how to grow without any growth in the banking system. Companies are relying more on themselves, less on banks as intermediaries. Peer-to-peer lending is a further example of disintermediation.
The prime reason for this squeeze on bank lending is the next force at work: rising capital requirements. One reason why banks got into such a mess was that they made piles of duff loans (the next issue), but they were encouraged to do so because they were not required to hold much capital against them. It was made worse because banks invented all sorts of clever wheezes to lend money without the loans appearing on their balance sheets. Now banks, quite rightly, are being forced to hold more capital, though still much less than a generation ago. If they don't raise more capital they will have to cut their lending. Either way, they have to cut costs.
Issue number three: the legacy of duff lending, much of it abroad. It is curious, in retrospect, just how foolish banks became. Of course some were worse than others, with Royal Bank of Scotland and the Bank of Scotland chunk of HBOS spraying money around in Irish property. Only this month, years later, has RBS managed to coax its Irish subsidiary, Ulster Bank, back into profit.
This has led to force number four: the retreat behind national boundaries. This is happening everywhere. Actually Barclays does not seem to have had as bad a foreign experience as many others, maybe because it has had a long history of international business. But the rump of that business in continental Europe is now deemed non-core, to be disposed of later.
Number five is differentiation between commercial and investment banking. Barclays is interesting because it is heavily weighted towards the latter – almost a big investment bank with a little commercial bank tagged on. There is a great debate as to whether there should be a complete split, or the present move to having much higher capital allocated to the investment side. The Bank of England seems comfortable with the idea of the investment side being about 25 per cent of the whole, and that may become the global norm. That is roughly where Barclays seems to be heading.
On the commercial side, there are two connected forces. One is the shift to online. If people bank online you don't need so many branches. Barclays is cutting radically, though we don't yet know by how much. The other, number seven, is the fragmentation of supply. The authorities are encouraging new suppliers, which squeezes existing ones. So this is an industry in rapid transition. We still need financial services, and areas such as fund management and pensions, will grow. Many of these services will be provided by the banks. Indeed they already are: wealth management is a big part of Barclays' business. But that will not, I am afraid, be much comfort to the 19,000 people losing their jobs, "regrettable" though that might be.Reuse content