In the UK, the problems associated with the oligopoly of the ‘Big Five’ firms which dominate the UK banking system are well documented. Admittedly, they are never acted on, but this is because they have so much influence- after all, it is these multinational giants which effectively control the distribution of financial resources that theoretically put inactive savings to use fueling growth and development in business. As such, they have the power to seriously undermine the government’s position.
That is why EU pushovers regulators argued that a series of takeovers, mergers and bailouts had resulted in excessive consolidation, and demanded that RBS and Lloyds Banking Group both hive off about 20% of their retail banking arms and sell them off. That was one of the most inadequate findings in regulatory history, but new competition is welcome in any case. Unfortunately, the two banks that planned to buy these newly created pulled out: Santander, already one of the Big Five (what was that about competition?) last year, and the Co-operative Bank this morning. In both cases, there was no serious threat to the status quo of inadequate lending to small businesses; obscene pay for executives; a dried up mortgage market; and a poor deal for savers. Even if any challenger could find the billions needed to buy an artificially-created banking unit, they’d still lack the resources to change the market. For a rough illustration, the two banks which Lloyds and RBS will now float on the stock market will have 300 and 650 branches, compared to 1500 and 2500 branches of the original banks.
Apart from anything else, there are significant implications for our democracy if our elected government (or not-quite-elected, in this case) can be held to ransom by a handful of businesses. It is widely agreed that it would be in the common interest to genuinely break up the banks so that the reprehensible blackmail of the state by ‘too big to fail’ corporations is a thing of the past, that a proper regulatory framework can be put in place without pervasive lobbying, and that institutions which don’t lend and don’t respect customers will fall by the wayside as they deserve to.
To do this, a cap on market share of the retail savings and lending sectors of 10% should be imposed, with the exception of the state-owned standard setting People’s Bank that I’ve previously advocated. If possible, the Government should facilitate mutualisation of one or two of the separated units, in order to ensure all three sectors can compete in ‘free’ competition.
Oh, and while on the topic, can I suggest that we have rules against the Treasury receiving free ‘guidance’ on banking regulation from staff on banks’ payrolls? There’s a tiny risk of a conflict of interest there.