Editorial: If Osborne won't tame the banks, the market might

Poor service and a series of scandals are adding to calls for more competition

Share
Related Topics

For all the vital importance of avoiding a repeat of the economy-threatening financial crisis, it is difficult not to meet the latest back-and-forth over banking regulation with a measure of ennui. It is, of course, necessary to protect taxpayers and bank customers better from the vicissitudes of retail institutions' buccaneering investment cousins. This newspaper supported Sir John Vickers' original suggestion of a "ring fence" dividing banks' operations, and MPs' latest proposal to "electrify" the barrier by giving the regulator powers to break up any backsliders also has much to recommend it. The troubles in the banking industry go beyond the simple question of how to keep the casino separate from the high street, however.

Even were George Osborne to capitulate to the most radical reformers and immediately split up all universal banks, the danger of some financial institutions being "too big to fail" remains largely unchecked, as the fallout from the collapse of investment-only Lehman Brothers amply testifies. Nor would it necessarily do much to address the cultural malaise that led to Libor-rigging, the mis-selling of payment protection insurance, or the laundering of money for Mexican drug cartels (to name but three of the recent scandals to have beset the industry). Most important of all, it would do nothing at all to address the appalling lack of competition that bedevils Britain's banking sector.

As things now stand, just five institutions – Barclays, Lloyds, HSBC, Royal Bank of Scotland and Santander – hold more than four in five of all current accounts and two-thirds of mortgages. Those that defend the status quo use an argument familiar from the dispute over ring fences vs break‑up: a large financial institution – particularly one with money-spinning investment operations – has the economies of scale to subsidise cheaper lending and free retail services. Just as such benefits lose all meaning if traders' "irrational exuberance" periodically threatens to push the bank under, such a stifling concentration of power can also only be of detriment to banks' customers.

Nor is it only individuals who suffer. Businesses, particularly smaller ones, also lose out, thanks to lending policies set nationally, which take no account either of local differences or a particular company's circumstances. Is it any wonder that, despite numerous creative schemes from the Bank of England, efforts to unlock business lending have borne scant fruit?

The good news is that the combination of ongoing customer dissatisfaction and repeated trust-sapping scandals are helping fuel the rise of so-called "challenger" banks, such as the two-year-old Metro Bank or supermarkets' financial services operations. But the barriers to entry remain prohibitively high and progress is slow.

There is another, more disruptive possibility, though, and it comes not from the watchdog (even one with newly sharpened teeth), nor even from the Office of Fair Trading review due in January, but from the market itself. Thanks to the internet, companies such as Zopa and Crowdcube can help those looking for finance to avoid banks altogether, either by matching up borrowers and lenders or by aggregating small amounts from large numbers of investors. So-called "peer-to-peer" financial services, which did not exist until a few years ago, are now growing fast. Indeed, as The Independent reported earlier this week, no less a figure than Andrew Haldane, the Bank of England's director of financial stability, talks of Britain's mono-banking culture being "in retreat".

Tougher regulation is one piece of the puzzle, then. But 2013 might yet be the year that sees the end of traditional banking regardless of the threats of ring fences, "electrified" or otherwise.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Business Analyst - Surrey - Permanent - Up to £50k DOE

£40000 - £50000 Per Annum Excellent benefits: Clearwater People Solutions Ltd:...

***ASP.NET Developer - Cheshire - £35k - Permanent***

£30000 - £35000 Per Annum Excellent benefits: Clearwater People Solutions Ltd:...

***Solutions Architect*** - Brighton - £40k - Permanent

£35000 - £40000 Per Annum Excellent benefits: Clearwater People Solutions Ltd:...

Senior Research Fellow in Gender, Food and Resilient Communities

£47,334 - £59,058 per annum: Coventry University: The Centre for Agroecology, ...

Day In a Page

Read Next
 

Taking on Ukip requires a delicate balancing act for both main parties

Andrew Grice
Today is a bigger Shabbes than usual in the Jewish world because it has been chosen to launch the Shabbos Project  

Shabbes exerts a pull on all Jews, and today is bigger than ever

Howard Jacobson
Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker