Seven reasons why Barclays was forced to shed 19,000 jobs

There are forces at work that are altering the nature of modern banking... and no institution is exempt

 

Share

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.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Recruitment Genius: Web Developer - Junior / Middleweight

Negotiable: Recruitment Genius: One of the South East's fastest growing full s...

Guru Careers: Marketing Manager / Marketing Communications Manager

£35-40k (DOE) + Benefits: Guru Careers: We are seeking a Marketing Communicati...

Recruitment Genius: Commercial Engineer

£30000 - £32000 per annum: Recruitment Genius: Estimating, preparation of tech...

Recruitment Genius: IT Support Technician

£14000 - £17000 per annum: Recruitment Genius: You will work as part of a smal...

Day In a Page

Read Next
David Cameron has reiterated his pre-election promise to radically improve the NHS  

How can we save the NHS? Rediscover the stiff upper lip

Jeremy Laurance
 

Thanks to Harriet Harman, Labour is holding its own against the Tory legislative assault

Isabel Hardman
Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

The 161-page dossier that exposes Fifa's dark heart

How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

Raymond Chandler's Los Angeles

How the author foretold the Californian water crisis
Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

Art attack

Chinese artist who posted funny image of President Xi Jinping facing five years in prison
10 best wedding gift ideas

It's that time of year again... 10 best wedding gift ideas

Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor
The ZX Spectrum has been crowd-funded back into play - with some 21st-century tweaks

The ZX Spectrum is back

The ZX Spectrum was the original - and for some players, still the best. David Crookes meets the fans who've kept the games' flames lit
Grace of Monaco film panned: even the screenwriter pours scorn on biopic starring Nicole Kidman

Even the screenwriter pours scorn on Grace of Monaco biopic

The critics had a field day after last year's premiere, but the savaging goes on
Menstrual Hygiene Day: The strange ideas people used to believe about periods

Menstrual Hygiene Day: The strange ideas people once had about periods

If one was missed, vomiting blood was seen as a viable alternative
The best work perks: From free travel cards to making dreams come true (really)

The quirks of work perks

From free travel cards to making dreams come true (really)
Is bridge the latest twee pastime to get hip?

Is bridge becoming hip?

The number of young players has trebled in the past year. Gillian Orr discovers if this old game has new tricks
Long author-lists on research papers are threatening the academic work system

The rise of 'hyperauthorship'

Now that academic papers are written by thousands (yes, thousands) of contributors, it's getting hard to tell workers from shirkers