MPs back 'ring fencing' of retail and investment banking

Robert,

When will you stop repeating the myth that Barclays was "bailed out" by the tax payer. This is simply not true

One solution is to have an account with all of them and then use the one that suits you at any point in time. Much easier than transferring all your eggs from one basket to another. Each one has to compete for a limited amount of business. LOL

I think that it is a must, not an option, that retail and investment banking should be separate. This will significantly reduce the risk of repeating the problems we faced in 2008 financial crisis.

The banks would not have been able to get into so much trouble if the banking system as a whole was not able to pump up the debt and interest mountain through the fractional reserve system. All money should be publicly created by the Bank of England, interest free.

To say that the Treasury Select Committee report is hopeless is widely optimistic. Utterly inept, inconsistent, illogical are just a few words that spring to mind

The membership of the Treasury "select" Committee does not exactly inspire confidence. Not even household names in their own household.

Lets start with the barriers to entry argument. It does not seem to have crossed the MPs minds that the laws they have passed may actually constitute many if not most of those barriers. There is no consideration of the rather obvious argument that many customers like bank branches (not me I am happy with the internet) - the need for a branch network is obviously a barrier to entry for new players in the banking industry but one imposed by customers not banks.

Then there is "it is difficult to switch accounts argument". Leaving aside the fact that the main problem is the over prescriptive rules on money laundering (imposed by govt), my own experience was that it was incredibly easy to switch banks - all my direct debits and standing orders were moved automatically

Then we get to the "free banking" section of the report where the MPs seem to have stopped bothering with even attempting to right a reasoned report and descended into cheap political stunts. They dragged some senior bankers in and then ambushed them with questions on how much interest were they getting on their own personal bank accounts. Well I have no idea how much I am getting in interest (other than it is not a lot) on my account today either but the information is freely available on my bank's website. As for the idea that "free banking" is not free because you may not be getting as good an interest rate as you might have if you were with another bank - words fail me. Free means I am not charged anything but in the weird world of the Treasury Select Committee the fact that my bank charged me exactly nothing is not free. It is bit like saying that if Sainsburys has a sale and reduced the price of all their goods by 10% that would not be a sale if Tescos was still cheaper. The argument is total nonsense

We need to have a really in depth well researched properly reasoned report in the British banking industry. What we have just received is so far away from this it is embarrassing

It is imperative that the investment arms of our current banks , can't use cheap money from retail operations or government bail outs to gamble for big returns in other areas . This is why "Ring Fencing" is the right approach.

The banks will fight this tooth and nail , their current bonuses depend upon it.

The assumption here is that MPs have something to say that is valuable. The second assumption, is that there is such a thing as an 'independent commission'.



How many small banks have failed since the sub-prime crisis of 2007?


Bradford and Bingley was a tiny bank - and what did the government do? Nationalize it, and pass its valuable assets on to a bigger bank ie Santander.

Alliance & Leicester was a small bank, it never posted a loss, and what did the government do? Pass it on to Santander.

So there are banks that are too big to fail, and there are banks that are too small to survive.

So my question is:

"Does this report consider the survival rates of the smaller banks?"

If so, then can we have a balanced view on that aspect of the report. If the said report has nothing to say about 'too small to fail' then might I suggest that this blog improves its line of questioning rather than 'quote'.

It seems the bigger a corporation the more untouchable it is, legally, financially and morally. And, contrasted against the damage these large corporations do to ordinary people, that is dangerously close to the kind of anarchy denied to people, like the Black Bloc, who choose to damage property in protesting against the evil abuses of power corporates enjoy.

It is always sad when abusers shout down their victims and people believe the former whilst turning their backs on the latter.

Tell us something we didn`t already know, we all know the banking profession is full of restrictive practices similar to the unions in the 1980`s.
Hugs flaws exist in its structure which many bloggers have already discussed and covered on your blog pages. Politicians will not do anything to change the current system while ever wealthy individuals and financial institutions fund there election campaigns. The whole system is corrupt from top to bottom, how can you have genuine democracy while lobby groups like cigarette, drinks, food manufacturers block legislation that protects ordinary consumers (the electorate).

@trevsbestfriend

"When will you stop repeating the myth that Barclays was "bailed out" by the tax payer. This is simply not true."

No, go on - I'll humour you. You're going to have to explain where Peston makes this assertion, because I've missed it, and I'm sure I can't be the only one...

@10 - I suspect it's this paragraph that tbf has a problem with. --
"But funnily enough, none of that is what will really worry RBS, Barclays and HSBC. Much more disturbing for them is that the MPs on the committee - who are from all the parties - say the mega banks have an unfair advantage as a consequence of their sheer size and importance to the British economy, which makes them too big to fail, always rescued by taxpayers in a crisis."

Robert has linked, by association, Barclays to Banks which have been rescued. Brevity will always catch you out!

But I don't have much sympathy for any bank - rescued or not. To a senior man they all have a lot to answer for; from charging me too much for a miserable service and depriving me of interest on my life-long savings to nearly wrecking, with the help of American bankers, the entire global financial system. The man on the Clapham omnibus should get something for the enormous damage these people have done.

Senior people in the industry should think themselves lucky they are not sitting within shouting distance of Mr Madoff all day.

Like Justin150 said, its pretty easy to switch banks if you want to, but the fact is that most people don't want to because its just not worth it. They're all pretty much the same except for interest rate - the rate differences can seem large because offering 1.5% is alot higher than say 0.1%, but people don't tend to use their current account to save, so on average most people will probably never have more than £3000 in their current account. I suspect that for alot of people the potential savings they could make would be less than £100 per year - hardly worth the hassle.

The other aspect is credit ratings. The length of time you have been with a bank is taken into account when you apply for credit, which is a deterrent to moving accounts for most people. Also loans and overdrafts are hard to move, especially if you have any marks on your credit record within the previous 6 years - I'm sure that at any one time this covers a pretty large amount of people, especially at the moment.

I know what the government could do with the shares we hold in the banks. I don't think they should be sold off. they should be held in a trust and ALL dividends used to fund 'Big Society' projects and charities benefiting the UK. That way the UK public will benefit as the banks prosper as they surely will. The public could be consulted on what the funding should be spent on.

"a maximum 9% or so of retail customers move their current accounts in any year, and the more relevant figure... may be as low as 3% per annum."

Maybe this is because the banks are doing a FANTASTIC job for their customers and should not be subject to interference by an unelected cabal of MPs.

On second thoughts...

Maybe it is the MPs, who are doing a fantastic job for their customers and should not be subject to interference by an unelected cabal of BANKERS!

Who's zooming who?

Too Big to Fail = Too Big to Care

I broadly agree with the Treasury select committee's findings. The critical factor is the separation of the retail banking and the casino type investments. A term which bankers hate, but sums up the result in an accurate manner. Mervyn King governor of the Bank of England, stated as much, and if Banks threaten to leave the UK. Then we should let them go.
It seem very obvious based on previous battles over bank charges that the Banks have a massive lobbying machine. It would it seem at least from my perspective the Banks appear to be above the Law, more powerful than parliament. So they will probably weasel out of any serious regulation.

1 trevsbestfriend:

Robert,

'When will you stop repeating the myth that Barclays was "bailed out" by the tax payer. This is simply not true'

I have filed this under semantics, denotata.

2. At 00:50am on 2nd Apr 2011, Robyn5000 wrote:
One solution is to have an account with all of them and then use the one that suits you at any point in time. Much easier than transferring all your eggs from one basket to another. Each one has to compete for a limited amount of business. LOL
===========================================================

Yes, Robyn, but don't tell everyone ...... we've known this for years but if we all do it, and play the banks at their own game, poor old Robert won't be able to write these blogs on MPs' findings about the less savvy majority of British consumers.

Leave them to their witless "we want to be together, we want a joint account, we want everything in one place, we want to moan all the time" mentality. ROFL

I think it likely that this group of muppets (that is what MP is an abbreviation of isn't it)? will secure a fantastic outcome for the general public and end free current account banking and we will getting a 'fairer' system that we all pay for as happens in most countries.

I also find the lack of competition ironic - didn't a couple of icelandic banks provide competition in the savings market place paying very good rates of interest? And when will a committee look into lack of competition for political parties with particular focus on how this impacts giving voters adequate information on their policies so we can suitability differentiate them and consider if their policies are plausible.

1&10... Barclays was "bailed out" by the Qatari sovereign wealth fund after the UK Treasury basically guaranteed any UK based institution with taxpayer money... without that injection of capital they too could have gone under as BARC shares dropped to around 50p. So to you BARC (employees? PR firm?) let's face the fact that they were bailed out, they just preferred the Qatari deal more than the UK govt... albeit with UK taxpayer guarantees on deposits. Splitting hairs...

Too big to fail is a fallacy, it's just more work for the bean counters.... I have tried to close my bank account at one of the big 4 and switch to the Co-op but due to having stocks and sharedealing I am required to have a current account. The current account was re-instated and I now have to keep 1500 quid in it to avoid paying punitive bank charges even though not one bp of interest is paid on the account... effectively my money devalues whilst the bank gets to leverage up on my deposit and take its turn... rubbish.... HSBC by the way....

The problem is the observation that those associated with banks and the banks themselves seem to be doing so well compared with the rest of us. Profits for banks, profit warnings for many other businesses. Whole sectors in decline.

Every sector has its role in our economy. Construction provides the buildings we need; agriculture, the food; retail, acquiring goods;financial services, savings and pensions ;and banks, the lubricant that enables it all to happen. We have an unbalanced economy which puts a major part of its effort to ensure a good supply of WD40! All that seems to matter is the continued success of banks and the rest can take their chances

We are in the middle of a major bubble called banking. What has gone wrong is that the lubricant is seen as a desirable end product in itself. The last few years have been only a minor setback. The perception that you can't raise living standards without a good banking system is probably right, but that doesn't mean that you should have a strong banking system at the expense of living standards. Bankers need to understand and act as if they accept that.

Most people who have worked in a large organisation will know of someone who acted as if their small area was in fact the whole purpose of the organisation - my experience as a teacher was the person who demanded whole staff meeings to ensure that the dinner registers balanced at the end of the week. Bankers want to be treated like that. They seem to forget they are part of a bigger whole.

Once they do that there will be meaningful progress to a restructuring of the banks.

I see having bank account, is like a marriatal agreement, dependant upon trust by each party, in this case my trust on them, is only to move my money about. If I want to move my account, it is dependant upon what I get in return, although the original agreement will always have to exceed past quality. Sadly the level of trust I have at present is much lower than it was, 5 years ago, although it's a fool who just blames the finance industry, as all commerce has also not acted in our or the customers better interest for several years, due to placing far too much emphasis on profit and there share value, and not focussing enough attention on where the money comes from originaly.

In reply to Trevsbestfriend regarding Barclays, your wrong, they wern't directly bailed ou by the taxpayer, they were bailed out by the Saudis, but they aslo benefitted by quantitive easing and cheap money. They were also collectively responsible for the worldwide financial mess due to their shadowy connections with 4 US banks. You guys just don't get it. The banks do not, never have and never will create wealth. They are the best example of a casino operation with the odds stacked in their favour. So they are too big to fail, if they keep saying it for long enough some one somewhere may beleive it, but the majority of people today would have let them go in 2008. The same banks when faced with a business customer in a similar financial situation i.e. insolvent, ar ethe first to foreclose and call in the receivers. If they think that they get baway with it again, there is surpise awaiting them, they will be allowed to go to the wall together with their overpaid executives, but there is also a sting in the tail, the EU is preparing legislation which will make the directors and executives personally responsible and liable to prosecution for failing in their duty of care to their shareholders, personally the soone the better.

I agree with Justin150's analysis. The MPs who questioned the bankers were hopeless. Having watched the spectacle they asked questions, then as soon as the bank executives were answering the MPs started talking to the person next to them, chortling at their sharpness or playing with their BlackBerries. Some were close to nodding off.

I have no doubt at all that if they put their mind to it they will successfully destroy this industry as they have others.

Banking culture is much more the issue than transparency. All banks view customers in terms of their short term profit (or loss) potential : when you're flush they'll behave as if they're your best friend in all the world, but as soon you start to struggle they'll cross the street rather than talk to you. Until we find a mechanism to change that it doesn't matter how transparent they are, or how easy it is to switch. They're all much of a muchness anyway, and I can't say that the prospect of paying a bit less to be treated so cynically fills me with much enthusiasm.

The real driver for lack of competition is that the barriers to entry into the banking system are so high. The new entrants who might bring with them a new approach can't break into the market. So the incumbents don't have to change, and don't have to try. Ergo so little innovation, and the luxury for the banks of being able to do it primarily for themselves and not their customers. They have their cosy little club, so why rock the boat?

Over the course of our lives we all have ups and downs: more ups than downs for most of us, so if banks stuck with us over the long term mostly they'd come out ahead. But why should banks take the pain of the short term downside when they don't have to? So long as they all behave this way there's no need for any of them to change.This is where the real focus of competition should be. Give banks the incentive to view their customer relationships over the long term and not drop us like a hot brick at the first sign of difficulties. Once the banks had that mindset the rest would take care of itself. Long term customer focus is the key. Until that happens, all this talk about transparency and mobility is a grand irrelevance. It's tinkering at the margins, and will benefit nobody but the banks. Well versed in the practices of obfuscation and prevarication, the banks will breathe a sigh of relief that the regulators have missed the point again.

The banks are rigged only in their favour. If you want to move to a good savings account many banks now also ask that you open a current account with them.

I worked in banking for 20 years from leaving school at end of 70s until 1999 when I objected to the blanket selling that was going on. I knew then 12 years ago that eventually they would fail as they were making bad lending decisions and good customer service had gone out of the window. Luckily I got out and changed careers.

The retail banks need to be split. We need to be more responsible borrowers and banks should be more responsible lenders. Many of the mergers between banks which have been going on for decades should not have been approved as they are now such huge organisations the impact of them collapsing is disastrous. Split them up and let them get back to sensible banking. Of course their profits will go down so I expect that is why this is not happening.

I am utterly amazed.

Posts 5 and 7 are both thoughtful and insightful. It is a pity that the writers did not have a position on the Banking Commission - rather than the Commission being packed with MP's and others who simply want to be on the bank bashing bandwagon.

A clear headed review of banking was required and from the evidence so far, this has not been forthcoming.

Why am I amazed - simply because their comments have not been removed by Mr Pestons moderators.

The ring-fencing idea is brilliant. Other than that, how on earth can current accounts constitute a market or be subject to the concept of competition?

Unless one is a plutocrat on a megabucks salary, it makes no difference with whom one maintains a current account. I chose mine because they had a branch in my home town. Even special offers for students were, at the time, so similar as to be irrelevant.

A current account is an administrative tool that is expected to "just work".

@1
At 00:32am on 2nd Apr 2011, trevsbestfriend wrote:

Robert,

When will you stop repeating the myth that Barclays was "bailed out" by the tax payer. This is simply not true
------------------------------------------------------------------------------
In the interdependent pass the parcel world of finance nowadays all the banks are roped to together like mountaineers on an ice face. When a couple of the fat guys fall off they take the other ones down with them. Tax payers in the US, UK and EU have all had to suffer to prevent the entire house of cards collapsing, Barclays included. Barclays have to be the luckiest bank in the world, Fred Goodwin stopped them being sunk by Abn Amro and Darling stopped them buying Lehmans before it went down. The question I would like to pose is why the Co-op can run a sound bank paying its chief exec a fraction of what these other folk pay themselves and propose that maybe we would all be better off in the long run if our now nationalised banks were made to run along similar lines,

Yours Aye,

Graucho

I have had a current account with a big high street bank for about 40 years. I have never paid a penny in charges & always transfer surplus balances to deposits around the market paying a competitive rate. The bank has never made a mistake on my account (in 40 years for goodness sake) & I have free access to more services (internet, telephone etc) than you can shake a stick at. Last time I went to the supermarket I was charged the full price for every item in my basket. Please can somebody tell me why I would want to criticise my bank, or get them to change anything. Please, somebody....

'Which is the last thing the banks themselves want to hear. They are bitterly opposed to the idea of putting their investment and retail arms in separately capitalised subsidiaries, fearing that would lead to a massive increase in their costs.'

................

Yeah! They'll probably have to pay more UK tax also!

There is another way of restructuring the banking industry and real/retail banks (not the SOFOMT's) that no one seems to have mentioned yet... that all depositor's monies of all bank's are held by the BOE on trust in an escrow account ( with a competitive interest rate) and the bank's get paid simply for providing 'transactional assistance'.

This would mean that there would not be any need to seperate the risky elements of our money from the high risk areas of the banks because they would not have direct control of our money as most of it it would all be held by the Bank of England.

This would provide a vital life-line for e.g. the UK Post Office and would enable a lot of small new banks to set up in e.g. retail outlets ... on a local basis.

On this basis, if a spivving bank got into trouble so what? ... Send in the baliffs as those in the banks are so keen on doing to ordinary householders.

Depositors would have the opportunity to have their money, as being safer, with the Bank of England, or opt out of this protection and put their money at higher risk in a SOFOMT?

No one else thought of that yet?

'Ring fencing' and 'separation of retail and investment funds alone', will not sort out the underlying problems in the banking industry

How effective is "ring-fencing" in an organisation? So much was made a few years ago about raising "Chinese walls" within banks. A board supervising the business of their separate investment and commercial branches would still have information from both. As for the arguments that our banks would be vulnerable to competition from universal banks on international markets the simple point for board members to remember in agreeing to a major investment is that the project be soundly assessed, and the prevailing conditions in which the investment is made, are also assessed in depth. It is "prevailing conditions" which tend to change most frequently and kill off badly thought through projects.

Returning to my theme of how inept the treasury select committee was - lets talk about joined up govt thinking

For good efficiency reasons, govt wants us all to have bank accounts. Indeed under the last govt there was a push to ensure that even the very poorest in society had a bank account - last govt tended to waffle on about social and financial exclusion but the real reason was that if everyone had a bank account it was cheaper and quicker to pay benefits.

Re-reading the treasury select committee report it is clear that they want to end free current account banking (it is a barrier to entry, it is not real free, it discriminates against those who get unauthorised overdrafts...take your pick of committee excuses).

Do you think it ever crossed the committee's collective mind that if banks charge for an account, the very poorest of society (and maybe a few others) would stop having a bank account?

Peston "One part of the report is a comedic must read" ......

"Ms Weir (Helen Weir, the departing head of retail banking at Lloyds) .... However, when we pressed her to say how much she paid in terms of interest foregone herself, she was unable to answer."

So Robert when you pop into Tesco and buy a tin of beans - you are fully aware of all of the other supermarkets prices for beans and are fully aware of offers that you have foregone elsewhere!!! I think not - do you find that comedic?

I have no idea what the average personal current account balance in the UK is - lets say £1000. Interest at 1% would provide an income of 2p a week 100% increase to 2% would provide income 4p a week. Does anyone make their Banking arrangements on the basis that difference?

Nationalise all banks within the UK boarders.
Lend money at 3% fixed
We all get cheap loans
Everyone knows where they stand
Bankers should then be brought before a retribution and reconciliation board and be stripped of all their assets be made to wear orange jump suits and forced to do community service.
No country can function without the banks, therefore the banks should not be left to the greedy self serving whims of the capitalist elite

Robert,

You write that the implicit guarantee of too big to fail banks harms competition because they can borrow more cheaply and then suggest that ring fencing banks' investment and retail arms would address this problem.

Surely if banks' retail arms were ring fenced, this part would effectively have an explicit government guarantee as it would contain the essential bits worth saving. It would certainly have no less of a guarantee than before. So how can this policy in itself can improve competition?

Attention to investment banking is warranted, given the banks' incompetence to assess risk in recent years.
However, retail banking should be left alone. The argument that banking is less expensive in the UK than elsewhere is sound. My wife has a moderate balance in a Euro account and she still pays quarterly charges which are quite high, even though her operations of the account are very few.
This idea of 'transparency' is likely to lead to expensive bean counting and everyone will pay more.

Banking is a public utility not a 'business'. Let's start running as such.

Where do I start. The MPs are a bunch of amateurs who don't understand business. Their observations are full of anomalies. They don't have evidence based comparisons with Banking services in other countries - if they did, they would reach an conclusion that doesn't align with their preconception. There is a great deal of criticism of banks some of it valid but the vast majority of customers are happy with the service they receive. Finance & especially current account banking is not a pure commodity-basked market - it's not like buying baked beans. People want to trust their banks, most do and thats why they don't move. The MPs attempts to change this will fail - customers are king and they have already voted. In terms of competition, the access to services and product choice that are available to me are outstanding. Good luck on improving that.

I said at the outset of the financial crisis that the Government should have allowed tone or more of the banks to fail and then nationalised them at their stock market valuation. We would then have secured the retail end of the banking sector which is whaqt affects the tax payer. The commercial banking arms could have been sold of to other commercial banks. In the United States very large commercial banks such as Lehman Bros were allowed to fail. It was the commercial arm of the banking sector ie the gamblers who got us into trouble. To have allowed them to go bust as they force other businesses to go bust if they think they can make money that way would have been just reward for their greedy behaviour and that of their shareholders who did nothing to reign in the companies they invested in's behaviour.

At present we have the worst of all possible world the banking fat cats are still paying themselves squillions of pounds in salary and bonuses for running failing businesses and the taxpayer in the form of everyday workers are still loosing their jobs, getting poorer public services for the taxes they contnue to have to pay.

I believe that the various political parties are a in hoc to the banks and all were more concerned about the effect of the banks recalling their loans than in regulatiing an industry that has reduced itself to little more than a collection of gamblers

Prior to 1987 I think it was, there was no such thing as a free bank account. It was only when Nationwide-Anglia launched their FlexAccount that one could have an account whereby you were not charged for every cheque written, every cash point withdrawal etc and I think they were also the first to offer interest on the current account. Yes, the overdraft fees were higher, but the whole point is that good customers - those that do not constantly go overdrawn - should not be penalised for the bad

From reading this report, it looks like this is what the committee wants to stop and, as others have rightly pointed out, think that fairness is that we all pay regardless of how well we manage our money, Seems that the old theory of equality by reducing everyone to the worst case, is still alive and kicking from the world of politics. They have done it with education, health and even the armed forces, so now let's make sure it happens to people who mange their money well.

As for splitting the banks, I and others have said it many times - look at the banks that failed and those that did not and do the simple test of who had dual income streams of investment/retail and who did not. Then use that as a basis of decisions.

One must remember though, MPs are not generally interested in long term solutions as they are more concerned about the next election and grabbing some limelight before then so that they are able to show their constituents that they are "working hard" for them......

23. At 08:14am on 2nd Apr 2011, Bob Matthews wrote:

"In reply to Trevsbestfriend regarding Barclays, your wrong, they wern't directly bailed ou by the taxpayer, they were bailed out by the Saudis, but they aslo benefitted by quantitive easing and cheap money."

Bob, there is a difference between being bailed out and someone making an investment. The investment in Barclays, for example, realised a profit for the investor last year whereas the UK govt has yet to make a return. Big difference there


"They are the best example of a casino operation with the odds stacked in their favour. So they are too big to fail, if they keep saying it for long enough some one somewhere may beleive it, but the majority of people today would have let them go in 2008."

Again, it was not the banks that said they were too big to fail - this was a govt term and one the govt keep using. No bank has, as far as I am aware, has said "We are to big to fail", but am happy if this can be shown otherwise

Govts made the rules that the banks worked within. Where those rules are deemed to have been infringed, the banks have paid numerous fines and amended their practices where appropriate. Where they have been found to be doing something illegal - insider trading, for example - some have been put in jail in this country, in the USA and even in France.

So again we need to look at whether the rules that are made for the sake of "seen to be doing something" is the best way of doing things or not. And this ties in closely with the idea of an unelected House of Lords as they are able to look at laws without having to worry about "will this get me re-elected" and so consider the longer term effects of badly written laws.

39. At 10:30am on 2nd Apr 2011, john_banker wrote:

‘The MPs are a bunch of amateurs who don't understand business.’

And the bankers do I suppose, may I draw your attention to two years ago, 5 years ago, 11 years ago, 20 years ago, 30 years ago, 40 years …….and so on.

‘They don't have evidence based comparisons with Banking services in other countries’

If it’s wrong it’s wrong, so there is no need to compare,

‘There is a great deal of criticism of banks some of it valid but the vast majority of customers are happy with the service they receive.’

Not in my circle, the opinion is a total 180 Deg to yours

‘People want to trust their banks’

Correct but cannot because they are learning the true nature of the banks

‘The MPs attempts to change this will fail’

Probably true, more money means more clout

‘In terms of competition, the access to services and product choice that are available to me are outstanding’

Glad to see you can afford them


I am sorry to tell you that your attitude is partly the reason why I fight the banks because it/you cannot see the damage of your self impotancy

I don't like the fact that we all have no choice but to lead our entire lives through the banks...Even as recently as the mid 1990's it was still possible for people to get a wage packet with real money inside, it was up to you if you wanted to put any of it into a bank account or leave it in your wallet. Now with the demise of the Post Office gyro it seems that even those on benefits have to succumb to the banks.
I have my own computer but I don't bank on-line...imagine if you had no option but to access your money/benefits on-line but having no computer of your own were forced to do all your banking on an open access public computer in a library for instance. Who would feel confident doing that?

You have the power to actually do something about this. Don't complain - you will be ignored. Just transfer your money into a Canadian bank (the safest in the world).

But ring-fencing won't be enough!!!

We need completely separate retail and investment banks.

And a lot more retail banks.....period.

We simply cannot trust the banks themselves to maintain "strong firewalls between their retail and investment banking operations".

It won't happen.

For proof that investment banks do not differentiate between their own money and customers money, let alone between retail and investment bank money, one only needs to refer to the documented actions of Lehmans in the years before it went bust, which is exactly the moment when it would matter.

Like public sector workers, the biggest fear that banks have is competition.

> the mega banks have an unfair advantage as a consequence
> of their sheer size and importance to the British economy, which
> makes them too big to fail, always rescued by taxpayers in a crisis.

I've made this perfectly clear to bankers and politicians over the last three years. I had begun to think that politicians are as dim as their banker-buddies in the City, but this at last gives me hope that the tide has turned on mega-banking. At last. It's going to be much fun watching the tide go out, and sweeping the parasites out along with it.

> the mega banks may have already lost what they would see as the
> most important part of the argument about their future

There is no reason to listen to any of their lame arguments - we tolerate them to serve us, the public. If they are a detriment to us, then they have to change their ways and that's the end of it.

About time!

Let the GOV take NS&I, and put under its control all of the part nationalised Banks Current accounts, and savings under say 100K. Then offer the clients of NS&I competative tax free rates on their monies. Refine all the products with wrappers etc like ISA's. Only allow tax free accounts at the NS&I.
Then watch all the other current account users with the none nationalised banks move over to NS&I. Retail banking all in one safe place, and let the remains of the financial system make weird deals that screw each other up.

Unless and until retail banking is separated from investment banking there will be no improvement in customer service. Banks make much more money from their investment arm and only have a retail arm so they can get more deposits cheaply.

A government protected retail banking licence should require that the entity does not operate in any other banking market. It can do standard loans and that's it.

Then the investment banks can blow themselves up as they see fit and the clearing system will continue to function.

Most retail banks want you to bank online even with their increasingly cyber attacked incompetent security.

Just keep your regular account and your Direct Debits or Standing Orders. That is your right by law. Do not allow banks or anyone else to charge you more for not paying your bills online - that's illegal under UK and EU law. Challenge a higher price for NOT paying online or so-called paperless bills. It's illegal.

#1 and all other apologists for the miserable banking 'industry':

All banks were bailed out by taxpayers.

Whether directly or indirectly.

The entire industry is dependent on the confidence of those who supply it with money (that's us, the taxpayer).

Once the confidence is lost then queues of people stand outside the doors of banks asking for their money back.

No bank could meet such demands because they don't have that much money lying around.

The government had to restore confidence by backing the banks with taxpayers money. Some banks already found they could not meet customers' demands and needed money directly or to be taken over.

Had the confidence not been restored with taxpayers money no bank would have been left standing. So in effect, all needed to be bailed out.

That's the problem with the system.

So please stop parotting your banking propaganda at me, you don't fool me.

One might point out that the sole purpose of businesses competing is to create a winner – one cannot have one without the other yet politicians always seem genuinely amazed when winners appear and competition comes to an end. What do they expect?

MPs are a pretty bunch dumb en masse.

MPs turned a blind eye to the risks taken by banks during Labour’s woeful tax guzzling era and then they all turned coats and decried wicked greed after, and only you note after, the effluent hit the windmill.

It was MPs who then decided that banks were too big to fail when they rescued some of them yet now they moan about the consequences of their own decisions and the adverse effects of large banks. Did they not think of this at the time?

MPs also decided that banks should have a more prudent approach to lending yet they now whine that they are not lending enough, another consequence of MPs own decisions. Vince Cable seems to swap sides about once a week between more lending and more prudence.

At least the banks are consistent, predictable, and honestly greedy unlike showers of MPs who have no clear idea what financial services are for or how they work.

It is not banks but MPs who need more rules as a quick glance around the sovereign debts of Europe soon discovers but I have yet to hear one politician (other than Merkel) propose to set caps on government borrowing powers yet that is fundamental to avoiding this mess next time around.

All in all banks are well-behaved intelligent puss cats compared with dangerous politicians creating hip fired policies at random.

Whatever happens, retail or investment arms of banks have nothing to lose from the same old bad behavior. I mean if banks were communist institutions, they would still get away with criminal behavior?

So, what are suggestions or recommendations for protecting the little people from bad boys who call themselves bankers?

Tricky question, and no doubt impossible for any financial journalist. However, the question is not rhetorical. Observations by journalists on financial issues are fine, but sadly, and increasingly random? No doubt, that reflects the inner financial circle that so many inhabit.

The firewall being suggested is what Thatcher and USA President (space) Raygun removed in the eighties that arguably led to the financial mess we are in now, while also pushing open the wealth-divide between the richest in society and your average joe on the street to become seemingly insurmountable. So its return would be welcome but would not return the cat entirely to the bag.

Instead the logical end-game to the thinking behind returning the firewall is just to require retail banks (or the retail parts of banks) to be run as not-for-profit mutuals or equivalents again. Any market for high-risk lending, of the sort Northern Rock buried itself in, can be met by companies solely set up for that purpose - where the risks are transparent and everyone involved does so at their own risk and no one elses.
Also, perhaps a novell but entirely possible idea is for the risky gambling that many in the City make their gross fictional pyramidal profits from, at everyone else's expense, could easily be done in an enclosed virtual on-line setting, completely separate from 'real-world' economics (e.g. profits made are traded for real world goods but are not connected to 'normal' markets). So when it inevitably crashes the only people to lose are the people directly involved in it, while the 'real-world' economy is untouched but could still benefit in a protected way from the greed based gambling activity done in a separate virtual alternative market place.

People are afraid of upsetting the 'profit-motive' rather than focussing on what capaitalism can do well and what is best run for solely for social and economic benefit rather than individual/share-holder profit - after all even economic theory indicates that what is best for the widest number of people is best for the individual as well.

3. At 00:57am on 2nd Apr 2011, Kassius wrote:
I think that it is a must, not an option, that retail and investment banking should be separate. This will significantly reduce the risk of repeating the problems we faced in 2008 financial crisis.
----------------------------------------

Kassius, explain how splitting up the banks as you state would have prevented the banking crisis. In your answer, please make reference to the following:

Northern Rock - pure retail bank;
Bradford & Bingley - pure retail bank;
Lehman Bros - pure investment bank;
RBS - basically a commercial bank that just threw it's loan book open to anyone who wanted a bit of cash in the name of market share;
Lloyds - conned into taking over HBOS, for which the RBS comment applies.

It's just the lazy option for politicians who need to be seen to be "doing something" as part of the mindlessly unthinking "crack-down on bankers".

Any split between Retail and Investment banking operations will lead to the introduction of up front monthly charges which will exceed any fore-gone interest earned on teh account balance.

The bonus culture was a bigger factor in the banking crisis than the combination under the same corporate identity of investment and retail banking. The crisis was behavioural more than it was structural and the biggest driver of the (sub-optimal) behaviours of key players were the absurd personal remuneration models. Any banking 'reform' which leaves this unfixed is a waste of time, will probably end up just adding needless overhead (as these 'after the event' reforms are prone to do).

Two points:
1)Having moved to the UK from Holland some years ago, I can tell you from experience that dutch banks have much better customer services, much more transparent fees and a lot less customer exploiting practices.

For example: in Holland, when paying with a debit card in a pin transaction (i.e. on a connected terminal), if the payment is larger than what is available in your account and you do not have an arranged overdraft, it's refused. Here, you go into overdraft (even if you have explicitly asked from the bank for that not to be possible, as I did) and have pay unarranged overdraft fees (often more than the actual payment).

Another example is the incredible difficulty there is to open a bank account when you move to the UK and thus do not have a credit record here. I moved here with a long, perfect credt record in two different countries, a significant amount of savings and a well paid job and still most banks were not interested at all in having my money (not even on a basic current account with no credit facilities). Even when I finally found one that would take my money, I was asked for things like sending my passport BY MAIL to their processing center. By comparisson, opening a bank account in Holland was a question of walking into the closest bank branch with my Passport, 2 utility bills and a letter from my employer and opening a basic account.

In the UK there are lots of small ways that most people that never had a bank account outside the UK don't even notice, that serve to reduce front-line personnel costs (while increasing hassle and/or risks for the customer) or increase the likellyhood that customers are charged for "mistakes".

2) Having worked both in banking (on the investment banking side) and in other industries, I can say from personal experience that from the inside, and compared to other industries, many banks clearly show all the symptoms of companies which are not in a competitive industry, such as:
- Overstaffing
- Bureaucracy
- Inefficiency
- Ad-hoc, reactive and ill-informed decision making
- Widespread empire building by management and the consequent culture of non-cooperation and even infighting between different teams in the same bank.
- No measurement of or rewards for increased efficiency
- Management focus on working to spend the budget rather than working efficiently

Or to put it in another way, banks are fat-and-lazy, while companies in most other industries are lean-and-mean.

Having also worked in a different industry (directory services, i.e. yellow pages) during a period where there was very little competition (before the Internet really took off), I see huge similarities between what I see in banking now and what I saw there and then.
The major difference is that when Internet started making their business redundant, directory services companies either went bankrupt or restructured to become lean-and-mean. On the other hand when Banks essentially shot themselves in the foot and dragged down the world economy with then, they got saved and (at least some) seem to have become even more fat-and-lazy than before.

1. The whole banking system was bailed out by the taxpayer - because all the banks are part of the same banking system and all are completely interdependent.

2.Splitting up banks does NOT answer the fundamental problem.

Why splitting up the banks is not the 'answer' and is just like banker bonuses NOT the right question.

So what in my view is the right question?

I believe that the real question is how we can prevent banks destroying both themselves and the country through engaging in one sided gambling, as the house, against the population. It all boils down to how banks make their money. It is important to understand that banks only make money from overseas activities - all they do within the country is divers some of money to themselves at the direct cost of the rest of us.

It the past banks created debt and lent it on houses as security creating and maintaining a gigantic ponzi like housing debt bubble. This had to crash (or in the case of the UK is yet to crash, but make no mistake it will and indeed it must crash.)

So the real question is: how we create a regulatory structure for banks that prevents them from creating, and cashing in on, inflationary asset bubbles.

Then we have to handle the past and the unsupportable asset inflationary bubble that exists today. In short how do we gracefully and rapidly unwind the bubble and halve house prices (as a first step.)

The ideas that come to mind including structuring the security of loans that increases the security's valve as the asset price drops or ensuring that the lender is completely responsible for ensuring that the borrower can under all circumstances repay the loan - this could involve the banks insuring themselves against default, but credit default swaps have had a bad name and have been ineffective so perhaps that is not a good idea.

Another idea is that we should change the corporate tax system of employers so that companies that create long distance commuting pay for the damage they do to the structure of regional house prices, by for example taxing companies on the distance employees travel to work. This could also reduce congestion and improve the work life balance and productivity of employees. But is would also depress house prices outside the major conurbations.

The key point to the actively prevent housing bubble and act to reduce house prices. We could also consider regional annual wealth taxes on property and the abolition of the capital gains tax exemption on primary residences with a serious increase in local taxes on the basis of a revised, unbanded and unlimited property value. We have to do everything to make homes a place to live and NOT an investment and certainly remove any profit a lender can make by 'investing' in homes.

Firewalled investment arms of banks could fund some of their capital shortage by paying bonuses to employees in the form of term deposits time-locked for 5 years. In the event of the bank's liquidation the employee would lose all. This would motivate employees to be concerned about the long term viability of their employer, encourage a healthy concern with the level of inflation in the wider economy, and (unlike paying bonuses in time-locked shares) prevent employees from benefiting undeservedly from any general uplift in the economy. Come to think of it this ought to be the only way bonuses are paid.

57 - rubbish. splitting off investment banks will NOT mean all the retail banking arms start charging fees. especially now its just a matter of a few electrons moving round a computer. And there are plenty of banks right now who offer a full range of banking services that illustrate the point. I use one.

What you and your kind mean of course is - if retail and investment banking are split then the lunatic (and as we have seen incompetent) alpha males in the investment arms won't have enough of other people's money to keep them at the top table in the casino.

And to those on here blaming in on the politicians - I would say - who got the rules changed? Who lobbied endlessly for it? Who got the Giro bank closed down and sold off? Who made all the bonuses and got all the pay rises? In other words - who benefited?

Politicians are worthy of a great deal of our contempt but their paymasters and their paymasters sycophants are not in a position to complain about behavior which was so much to their benefit.

In any case as been recently seen people are also in a rage against politicians - the only thing to say even remotely in their favour is that they are accepting the rigour of the law and some of them are actually going to prison for offences which involve sums of money the financial services industry would regard as trifling for a board lunch

trevsbestfriend wrote:
Robert, When will you stop repeating the myth that Barclays was "bailed out" by the tax payer. This is simply not true.

Well, I have read and re-read the article and I cannot see where Robert states that.

But you could argue thus: Who bailed out Barclays? Qatar. Where does Qatar get it's cash? Oil. Who buys oil? You and me. Si, the Tax payer bailed out Barclays. QED

It's no more bonkers than trevsbestfriend's analysis of the world...

#59. Ricardo wrote:

2) Having worked both in banking (on the investment banking side) and in other industries, I can say from personal experience that from the inside, and compared to other industries, many banks clearly show all the symptoms of companies which are not in a competitive industry, such as:
- Overstaffing
- Bureaucracy
- Inefficiency
- Ad-hoc, reactive and ill-informed decision making
- Widespread empire building by management and the consequent culture of non-cooperation and even infighting between different teams in the same bank.
- No measurement of or rewards for increased efficiency
- Management focus on working to spend the budget rather than working efficiently

Or to put it in another way, banks are fat-and-lazy, while companies in most other industries are lean-and-mean.
"

Do you not consider that they are like this becasue they are regulated and protected by the regulation? The barriers to entry into the banking market are gigantic and essentially insurmountable.

Perhaps the most pernicious part of the regulation is the way that the banks choose to implement the anti-money-laundering regulations as way to prevent transparency and account mobility.

I agree with post 27. Posts 5 & 7 seem a lot more insightful than our MPs!

It's a pity Robert and the BBC in general aren't more challenging of the poor thinking consistently displayed by members of the Treasury Select Committee both in this Parliament and the last.

Let's analyze what Banks actually do.

They amass money from other sources which they then gamble on various investments. If they make bad investments and go bust, you and I suffer. If they make good, profitable investments the shareholders benefit.

What kind of mugs are we?

None of my banker friends seem to know - or even understand - the difference between amassing cash and creating wealth, which is something banks do not do.

RP said:
And this perception that the mega banks can't possibly go bust is also an enormous reassurance to ordinary depositors and savers - which is another competitive advantage they have over banking newcomers and tiddlers.
=================
Surely the £85,000 government guarantee applies to all licenced financial institutions.
A new small bank Metro Bank opened a few months ago; does anyone know how it is doing?

@trevsbestfriend

Where in this piece does it say that Barclays were bailed out?

https://bbc.kongjiang.org/www.bbc.co.uk/go/blogs/thereporters/robertpeston/ext/_auto/-/https://bankingcommission.independent.gov.uk/bankingcommission/

The terms of reference for the banking commission are a bit vague and as not specifically looking at issues such as e.g. the underlying constitutional issues on rights - v - privileges and the notion of the 'opportunity cost of British capital' and the relationship between banking and the rest of the UK economy such as strategic and preferential investment in the UK regions and the UK domestic economy and the question of banks funding those making super-profits on e.g. UK imports.

Looks like the establishment is still operating some protectionism here? It looks like another 'white-wash' in the making to me ... the Commission will only specifically look at what it has been asked to look at ... the oldest trick in the book regarding Whitehall sleaze.

All that the banks are bothered about is the prospect of their having to pay more UK taxes as their operations and organisational structures are sufficiently flexible to have a finger in every global pie ... shutting down or moving a couple of offices in the UK; is peanuts to the damage caused by bankers to the UK economy ... bearing in mind that most banks are a series of global cost centres anyway ... the only reason that the large banks are still in the UK is the soft environment for them and access for favours and tax loopholes as maintained for them by politicians on their personal and corporate taxes.

The Treasury select committee is in a classic rock and hard place scenario.
If they have more than half a grey cell amongst them they must realize that should they rein in banking activity then the economy will tank.
But.
They will also realize that the banks have been bonkers and will most probably continue to be so.
Alone in the field of human endeavor they have the licence to create what their customers are clamoring for and can then charge them interest on credit provided.
And yet they managed to screw up spectacularly.
How could those bankers be so idiotic?
Once you realize that the bankers are not idiotic you realize what their game is.
Ripoff ad nauseam.
The Treasury select committee must realize this.
What are they to do? ----------====

3. At 00:57am on 2nd Apr 2011, Kassius wrote:
I think that it is a must, not an option, that retail and investment banking should be separate. This will significantly reduce the risk of repeating the problems we faced in 2008 financial crisis.
--------------------------------------------------------------------------------
When the banks were being sold down in the spring of '09, how do you know which part of their operation was in trouble? And whether one or more of their operations were actually in trouble? Emotion, as well as all sorts of other things, can drive investors to sell.

And when the banks went looking for money at that time, which part of their operations was it for? For their high-end financial management? To ensure cash-flow for retail banking? To complete an M&A contract? To shore up their factoring or leasing operations? Cover broking liabilities? Or was it across the board?

We'll need to be very careful if we do separate out the operations of the bigger banks. It may be impossible to do with smaller ones. And in the process, you may be laying the groundwork for a future crisis and collapse.

And this may just, once again, require a very expensive rescue.

Robert,
I wonder how many on the MPs Committee held banking qualifications or had previously worked for a major public bank?

It was said that when they had the executives of major banks in for a grilling in 2009/10, that very few people, if any, in the room were qualified bankers. The MPs and the executives and the civil servants probably held first degrees, possible MBAs and other second level degrees, but almost none had actually taken and passed the banking examinations.

We do know this. The point is that Angela Knight of the British Bankers Association is never challenged when she says 'only a small number of British banks were involved' David Buick claims that only a couple of dozen individuals were involved and they have gone'

There needs to a comprehensive, broadly based judical enquiry as to what actually happened.

66. At 15:28pm on 2nd Apr 2011, El Presidente of Lunatic Republic wrote:
Let's analyze what Banks actually do.

They amass money from other sources which they then gamble on various investments. If they make bad investments and go bust, you and I suffer. If they make good, profitable investments the shareholders benefit.

What kind of mugs are we?

None of my banker friends seem to know - or even understand - the difference between amassing cash and creating wealth, which is something banks do not do.
------------------------------------------------------------------------------
A complete mug, if the above is anything to go by.

Any business, bank or not, that is limited liability spreads risk. When that risk is more than can be contained within the business by recourse to reserves, other solutions have to be sought. Our banks were deemed more important than the Daily Sport/Sunday Sport and Oddbins when the possibility of failure hove into view and so were rescued. Dig back in the history of business and you will find some Government initiated and/or backed rescues of other businesses: Rolls Royce springs immediately to mind.

Your last paragraph doesn't really make sense but I'll resist the opportunity for a joke. I interpret it as being that banks just amass cash from other people. They do not create wealth.

On the first part, any business amasses cash from other people. If it doesn't do it enough, it will wither. If it does it any less than that, then the people who work for it receive less remuneration. If it actually loses money - it fails. This is true for any business. {Interestingly, at the point of the bank bail-out, the banks were still making money.}

On the second, the banks appear to be extremely good at creating wealth. Bob Diamond was so good at doing it for Barclays Capital's clients that the Group thought he ought to have a go at doing it for the whole company as CEO. And don't forget the bonuses. I have a feeling you are the sort of person to complain about those but they have sure made their recipients wealthy!

Perhaps the best thing is the government running a retail bank of its own. People working there would receive 'normal' salaries, eg as in the government sector, no bonuses at all. 'Too big too fail' is then removed, banks are on their own, just like any other business. If a bank fails, current & savings accounts automatically transfer to the government bank (subject to the guaranteed limit) and payment systems continue to work. People who work(ed) for a failed bank who earned more than say, 1 million, are held personally liable (this to prevent people from plundering a bank then leaving just before it collapses). Yes there will still be plenty of disruption but it's better than the current system where taxpayers, in effect, have to subsidise too-big-to-pay bonuses.

Well it is rather like utilities when the phone call comes in and you are asked to change to British Gas etc. It is tempting to say bring back clause 4 and I am soooo old that I do on occasion. With banks it seemed very simpled when you joined the one nearest your place of employment. The manager may have taken your father for the odd lunch. You were told YOU COULD NOT HAVE A LOAN in your twenties. No competition and no one changed their accounts EVER. (There were no bonuses either) GOLDEN DAYS?

39. At 10:30am on 2nd Apr 2011, john_banker wrote:

> Where do I start. The MPs are a bunch of amateurs who don't understand business.

Spot on – the MPs have no idea how much damage rogue businesses can cause if left to their own devices. Business has to be told what we like, and told to get on with it. And business has to shut down when it is detrimental to the public interest. In this country, the public interest is always paramount.

There is no room for complacency – we have to be tough on harmful businesses, and tough on the causes of harmful businesses.

"There needs to a comprehensive, broadly based judical enquiry as to what actually happened." - apex @ 73

I agree, a scandal of such dimensions merits at least that, and here’s my opening testimony:

‘Securitisation’ (the parcelling up of a bunch of mortgage loans into a bond – MBS- then sold to investors, thus freeing up the balance sheet of the original lender to make more such loans) became a massive market; fuelled by investors' chase for yield in an era of very cheap money (courtesy of the Fed). Most issues American (their idea) but spread to other countries too.

As the chase for yield intensified, more and more grass roots lending was required to feed the machine - hence US sub prime - enormous sums of money lent to poor Americans who couldn't really afford it. All secured against US property. Securitised into MBS and sold all over the world. Lapped up by just about everyone including British banks and other institutions. Each MBS given a rating by the Ratings agencies - in most cases a AAA - a false rating which made them even easier to (mis)sell. Why a false rating? Because the Agencies were paid for their service by the bond issuers, lack of independence. Plenty of fraud too at the grass roots lending level - borrowers encouraged to lie on their applications, money lent against non existent properties, this sort of thing. Keep feeding the machine. Keep banking those bonuses. If a borrower defaults? Well who cares, secured against property which always goes up. Everybody happy.

Until ...

Summer 07 and it's noticed that the default rate on US sub prime loans is going UP and the value of US property is going DOWN. At the same time! Oh god. First trigger for the credit crunch is a French bank (SocGen?) announces it can no longer place a value on its portfolio of MBS. This gets people thinking. Because this stuff has found its way in BIG SIZE on to the balance sheet of just about every financial institution in the developed world. But nobody really knows who's got how much of it. Uncertainty. Panic. Banks are now afraid to lend to each other. Situation deteriorates. Another factor rears its ugly head. Credit Default Swaps. This instrument has been widely used to hedge banks' exposure to others, so they're protected in the case of default. Or they think they are. Trouble is a lot of these CDSs have been written with an outfit called AIG and AIG (it now turns out) have also been playing big time in the now discredited MBS market. They've got loads of the wretched things. Becomes clear that if there's a couple of major defaults, they couldn't pay out on the CDS protection. Things really on the slide now. Wholesale money and credit markets dry up. Banks like Northern Rock who rely on borrowing short and lending long can't borrow any more. Queues on the street in Blighty. Banks get saved to avoid mass panic. Lehman is bust and allowed to fail. AIG saved to avoid a wholescale domino effect. System still on the very edge of collapse. Iceland. Emergency action required (and taken). Gigantic sums of public money pumped in. Borrow it, print it, whatever. Has to be done. Keep the show on the road. Just.

And since then? Well we’ve just been hoping and paying.

This comment was removed because the moderators found it broke the house rules. Explain.

State Bank? - 75 - yes that's a slam dunk proposition. Banking is a basic core public utility which for too long now has been suffering delusions of being an entrepreneurial business in its own right. Time to defrock it. Sorry - 'defroth' it, I mean.

It is obvious that the common perception of "competition" is seriously flawed. The government should retain and /or acquire a controlling interest in one high-street bank and use its ownership to influence interest rates for the good of the electorate.
Ditto, one domestic energy supplier, to provide effective price controls through market forces rather than the toothless watchdogs that we have currently.

@53. At 13:46pm on 2nd Apr 2011, Paul J Weighell

I fear you give MPs far too much credit. I'm not convinced that they are anything other than completely impotent and little more than stooges - bit-players on a stage they are insufficiently qualified and ill-prepared to act on.

@77. At 17:35pm on 2nd Apr 2011, Jacques Cartier wrote:
"There is no room for complacency – we have to be tough on harmful businesses, and tough on the causes of harmful businesses."

Now all we need to do is identify a "harmful business" - I take it you mean one that resorts to bribery, coercion and underhand dealings in order to achieve its goals? That's one hell of a lot of very big businesses.

@76. At 17:14pm on 2nd Apr 2011, Anne Semple wrote:
"GOLDEN DAYS?"

Or just nostalgia? It has a tendency to cloud judgments and make bygone days seem more attractive than they really were.

@56 Mr Right

The whole banking crisis started off as a crisis for Investment banking - but because their financing was primarily dependent on retail deposits and capital from the public, contagian happened whereby retail banking came under pressure.

Increasing pressure was applied to generate finance through sub-prime to enable more capital to be funneled to higher risk asset management activities.

The point being made is banks were making investments in the belief that through being too big to fail a LOLR would always be found to bail them out.

Assuming the above reform had already been in place what it would have meant is the following:

1. The amount of capital being invested would be lower, so the salaries in the banking sector would come down
2. Availability of credit would have been lower has banks would have had less reason to seek to borrow money from the public. This would therefore reduce price pressure on areas like property etc.
3. The cost of raising finance for IBs would be higher, forcing banks to pay more for specialist savers accounts where users give discretion for the IB to use the funds for investment, giving cash rich people greater returns on their savings.
4. If the IB failed, the capital of the residential arm would be untouched, meaning there would be no more impact to the public than any major organization going under.

now looking at your examples
Northern Rock was only in trouble because of NRAM (northern rock asset management) which was borrowing from money markets to reinvest. It was NRAM that dragged down NR, not the other way around.
RBS - in trouble because of investment banking division - not retail.
Lehman - allowed to fail was because it was investment banking only - what happened as a result? ML got bought by BoA, and GS was under pressure for a while.
B&B - in trouble because it sought to raise grow through high risk buy to let & sub prime lending - as soon as property prices started stalling they were in trouble. Ireland is a macro example of this. Arguably could have happened regardless of IB crash, but that acted as a compound.
Lloyds - HBOS would never have been needed to be bought if it wasnt for IB division causing a critical failure.

"It's just the lazy option for politicians who need to be seen to be "doing something" as part of the mindlessly unthinking "crack-down on bankers"."

Fundamentally disagree - actually after the wall st crash Glass-Steagall was passed in USA which prohibited the use of retail capital for investment banking purposes. Given the parallels between the WSC & crash of 2007/9, it is interesting the solution found in 1933 to prevent against a re-occurrence worked, and we only saw a comparable crash once the act was repealed. Insofar that the only people who seem to oppose this change seem to work in Finance, do you work in banking by any chance?

@60 JfH

Maybe the answer is - Regulate the borrower. Statutory limits on mortgages; no borrowing on credit-cards; no "store" cards; that sort of thing.....

I recall a management consultant telling me he was advising a banking marketeer on how best to communicate the banks products. He was asked if his firm had experience of how telco's and mobile companies deliberately create confusing product tariffs to make it difficult for customers to properly assess where the best deal was. The banker admired and wanted to use some of the telco's techniques!

Frankly any person you speak to will tell you there is NO effective competition in retail banking, certainly not for current account products or overdrafts. The complaints procedures are 20 years behind any other industry. Customer satisfaction does not drive any of the Board members bonus targets. There is no concept of customer, only "products" that need to be shifted at huge margins.

Banks hoodwink us in 2 ways (a) by having control over our money but which they treat as their own to do as they wish (b) by making out that their business is somehow more complicated than any other thus why they deserve super-greed-ridden bonuses that simply have no justification to the job in question.

So: Break up the super-banks and encourage more smaller ones, separate retail from investment gambling, mandate clear product/pricing descriptions so that comparisons are easy between bank products, expose the payroll and bonuses details of staff and we will go someway to improving the current situation (which is untenable).

I favour a free market, but not when one industry starts to abuse it through monopoly or oligopolistic behavior, which is what bankers are now doing.

We dont need any more analysis and reports - we need ACTION to help UK citizens now. Unfortunately only the government can take that decisive step, and I'm not sure the current lot of ministers have the courage.

who cares about the banks, there bridges are well and truly burned.

Most people I know are clearing debts fast and escaping the banks clutches to the coop or building societies. Sadly this is reducing the money supply and compounding the uk's problems.

# 64. John_from_Hendon wrote:
#59. Ricardo wrote:

[...]

"

Do you not consider that they are like this becasue they are regulated and protected by the regulation? The barriers to entry into the banking market are gigantic and essentially insurmountable.

-----------

I do believe the problems with banking in the UK are due to the huge barriers to entry into this market and most of those barriers are due to regulation.

Not just banking regulations, but also things like planning regulations (that affect the opening of branches), the non-existence of a national card payment network - card payments are processed exclusivelly via the VISA and Mastercard networks - and the way credit ratings are managed by a small number of for profit Credit Rating Agencies (Experian, Equifax, Call Credit) instead of a non-profit independent entity.

I've also noticed that the major banks either directly or via the British Banking Association have essentially written their own regulations, with the natural outcome that such regulations favour big banks and incumbents.

On the investment banking side you have things like the "too big to fail" insurance from the taxpayer that allows universal banks to get very cheap loans from the moneymarkets, advantages that come from size - such as access to the moneymarkets, being able to be their own brokers (direct connectivity to the exchanges), having their own machines located at the stock exchanges site (i.e. millisecond auto-trading) - lack of price transparency and overall the advantage that, as experts in the subject (finance), investment banks can (and do) treat their customers like suckers and get away with it (a bit like some car mechanics that will charge large amounts to fix small problems since the customer doesn't know better)

The problem is one of regulatory capture, not simply one of too much regulation.

It's a mix of too much regulation in the wrong places, lack of regulation in the right places and non-application of the existing regulations that happen to be good.

Barclays was rescued by the Fed, and ...

https://www.taxresearch.org.uk/Blog/2008/11/18/shareholder-interest-is-a-thing-of-the-past/

If we want to make moving accounts easier how about allowing account number portability so you keep your sort code and account number when you move to a different bank? A number is just a number in this day and age and as long as it is unique that is all that is needed. (ask the phone companies if you can't grasp the idea). I run a small business and one of the reasons we don't shop around is the hassle of informing all our customers that the payment codes have changed........

No one ever moved mobile phone networks until OFCOM grasped that nettle and now it's easy to move phone networks.....

78. sagamix :


".......... keep the dhow on the road. Just"
____________________________________-

I agree with you. There is still the house of cards. Nothing has been done about the CDS problem. The next implosion will be insoluble.

TYIW

As people have said on blogs past... bring back Girobank, integrate NS&I and have a serious national competitor run for the good of the customer and not to enrich the few.

trevsbestfriend: "When will you stop repeating the myth that Barclays was "bailed out" by the tax payer."

It is not a myth. By your argument, Goldman wasn't bailed out when AIG got rescued. Barclays did very well indeed from the bailout. You can bail out by paying the creditor/despot directly, or, by bailing out the debtor.

This comment was removed because the moderators found it broke the house rules. Explain.

Have they specified exactly what is to be ring-fenced: is it just the UK operations. HSBC especially has retail operations in every continent. They must really regret taking over Midland Bank, especially accepting the condition which required them to move their HQ to London.

I agree, in part, with BoilerBill's earlier post that compared banks with WD40.


If the economy is comparable to a car, then banks are not the engine- they are the oil. To consistently act like they are more important than the wheels, engine, suspension, steering, seats, fuel and even the driver combined is quite obviously sheer vanity! The belief that they can't be replaced, particularly when thinking of this comparison, is laughable.


Where I do disagree slightly is in the banks being the actual 'infrastructure' they claim to be and thus even qualifying as the oil! It occurred to me that they are not anymore, they have actually been replaced by the Visa and Mastercard networks that they helped to promote. With Solo and Switch being almost negligible now (in part thanks to the banks pushing of the more-profitable-for-them V&M systems) we are now almost wholly reliant on these 2 companies in order for business to take place.

Why?

Why have the economies of so many nations become so reliant on the eletronic financial transaction systems of 2 'rivals' (more of a cartel) who have squeezed virtually all competion out of the market? Telecoms is a similar network, and yet we do not see such things as Vodafone refusing to allow an Orange customer to call one of its phones- yet that is the equivalent of what takes place every day in almost every shop in the UK!

Think I am exagerating? Well, if you have a Switch or Solo card have you tried buying anything online with one since about 2003? Almost nowhere accepts them any more, you have to use them via Paypal now. Or has PP also stopped accepting them?
Tried buying a ticket for the 2012 Olympics with a Mastercard?
https://bbc.kongjiang.org/www.bbc.co.uk/news/10394970


It doesn't matter what bank you are with if your only real 'choice' is whether your debit/credit card uses Mastercard or Visa to make a fixed charge per transaction plus a percentage of the transaction on top! For those of you who may not have realised, yes that's right- a fixed fee on top of a percentage of EVERY transaction- both buying and refund as well! Ever wondered why so many stores have a minimum spend with a card? It has nothing to do with the time taken, it's purely down to the fact that below a certain amount and that fixed cost results in a LOSS for the retailer!

An infrastructure transaction system such as this which is a requirement of all modern commerce should not be run as a virtually unregulated private cartel. It should be a nationalised system. It has the potential to be utilised as an integrated and highly efficient system that could help ensure that taxes (such as VAT) are correctly collected. Instead it allows private corporations to take a portion of almost every sale made in the same manner as a tax. In fact if you pay your Road Tax by card how much tax goes to them instead...

Leviticus - you make some very valid points regarding MasterCard and Visa. However this is no fixed fee levied on a transaction - it is all variable fee based. Many merchants now levy fixed fees for making payments with these cards but that is the merchant doing it not the two big players.

#95
I think that you are over-emphasisng the role of Mastercard/Visa. I think you will find that the cards are issued by banks and so are the electronic card readers in shops etc. M/V just do an enormous sort on a worldwide basis, convert currencies and do some emarketing. The issuing/handling banks also often issue cards from American Express which does the same processes.
So the banks provide the oil even here.

1. At 00:32am on 2nd Apr 2011, trevsbestfriend wrote:
Robert,

When will you stop repeating the myth that Barclays was "bailed out" by the tax payer. This is simply not true

It is true. Barclays solved their liquidity problems by raising a few billions from some dodgy Arabs. The provenance of this money is highly dubious. Barclays also benefit directly from the tax payer from de facto insurance,toxic asset purchase and QE both here and America.

It is your bank apologist drivel that is untrue.

This lack of competition will not be helped by the forthcoming transfer of the English RBS branches and the Scottish Nat West branches to Banco
Santander. this means that Banco Santander will have taken ove Abbey National. Alliance and Leicester, Bradford and Bingley, as well as RBS and Nat West. Where will it all end?

Does the comment "Probably all you need to know is that a maximum 9% or so of retail customers move their current accounts in any year" - take into account the millions of customers who open a new account with a new provider, and never close their old account but stop using it - this is in effect "switching providers" - but will not be flag as such!