New banks please

You read it here first – we need new banks and more banks. That will serve us better.

It was good to hear yesterday the Governor of the Bank of England admit there is a bank lending problem for small and medium sized enterprises. It is also good to see the Daily Mail launch its campaign to get some action.

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28 Comments

  1. @jpands
    Posted July 29, 2010 at 7:56 am | Permalink

    I totally agree, the big high street banks, after all the consolidation that was allowed under Labour, have too much power & are too arrogant!

    I know of a small viable business with a a good order book that had it's overdraft halved without notice, so as I see it the bank's that say they are supporting small businesses are lying through their teeth & this company banks with one of those banks that is claiming as much!

    Time for a change I believe was a strap line used by David Cameron & I agree with him. Time the banks were brought to heel properly & competition on the high streets is the best way – any hit on their collective bottom lines by having new banks competing & offer customers what they want is good because clearly the big banks aren't listening to the Government!

    I personally can't wait for a Metro branch to open near me, I'll be in the queue on opening day!

  2. Ian Jones
    Posted July 29, 2010 at 8:04 am | Permalink

    The banks are currently (financially stretched?-ed), they are raking in profits in order to write off the bad debts in 2 years time.

    No doubt there will be more QE in order to satisfy your wish thus destroying even more savings.

  3. APL
    Posted July 29, 2010 at 8:09 am | Permalink

    JR: "You read it here first – we need new banks and more banks."

    In your comment archives you will find exactly the same suggestion dating back a couple of years.

    The difference between then and now, is that then it was suggested the new banks be built on the bankrupted retail shell of the old bankrupt banks.

    That way, no liability for the UK government other that guaranteeing domestic depositors.

    By the way, why all the hysteria about 'lending to small business', why does a small business not fund itself, for free from its own cash flow? That would certainly be cheap by comparison to 8% you get from a banks.

    • StrongholdBarricades
      Posted July 29, 2010 at 10:28 am | Permalink

      I agree with your first statement

      The second doesn't quite address some issues within the business world. Cash flow will always be used for "Organic" company growth, but there are some issues such as the purchase of large and expensive new machinery which could actually deliver a faster and cheaper alternative, and thus improve a companies competitiveness which isn't always possible from cash flow. Plus for some companies cash flow may be "projections" where there are no regulations about bill payment within a specified period.

    • Colin
      Posted July 29, 2010 at 11:02 am | Permalink

      Lending is important because a viable business can often grow faster with extra cash.

      Imagine a company that makes widgets. It has one manufacturing machine making widgets which are selling well. It is running it 16 hours a day, the maximum it can. One way for the company to grow would be to buy another widget making machine so it can make more widgets a day. To do this it would need to buy a new machine, hire more employees and possible find more space. This would need a initial capital outlay or financial commitment.

      If it took 3 years to save up to get this machine, which would double it's profit, it may be ( depending on the exact financial details ) that it would be in a better position taking a 3 year lone out to cover the capital outlay, as the total loan would cost perhaps 4 years original profit, but they are now making twice as much profit, so they would be better off after 2 years. From an economy perspective, it is even better as it means they employ twice as many people for those 3 years and the extra widgets sold are econmic growth.

    • Conrad Jones
      Posted July 30, 2010 at 1:47 pm | Permalink

      in the US, Back before 1913 and the Federal Reserve; Businesses use to fund themselves from their own cash flow.

      When money was real and not fabricated out of thin air (Government Debt), interest rates had to reflect the true worth of that so distant asset – real money.

      It was therefore too expensive for Businesses to borrow from Banks. Banks were panicing about this as big business didn't need them. Their importance and profits were reducing drastically (and were weakening). In an effort to reverse this trend – the secretive Federal Reserve Bill meetings were attended on Jekyll Island, Georgia. Now we have cheap "Currency", massive Public and Private Debt and Very Important, Profitable and Powerful Banks in charge pretending to be sorry for the mess they and previous Governments, have caused. Cheap "currency" also encourages Wars. We are now embroiled in TWO.

  4. waramess
    Posted July 29, 2010 at 8:29 am | Permalink

    Now you are getting serious. No point trying to get banks with excessive leverage to lend, much better to get new banks into the system but, who will want to enter now the restrictions on banks are taking all the fun away?

    Maybe the Bank of England can be persuaded to lower their entry bar and encourage further participants whilst politicians urgently get to grips with legislation that permits an orderly winding up of banks without the need for taxpayer bailouts

  5. C Tips
    Posted July 29, 2010 at 8:49 am | Permalink

    How about making social peer-to-peer lending (Zopa etc) tax free and allowing these organisations to provide bigger size loans and to corporates? That would potentially kickstart lending without top-down banking edicts…

  6. Norman
    Posted July 29, 2010 at 9:05 am | Permalink

    Break up Lloyds TSB and RBS back into their constituent parts. Sell them off and give us discounted shares in the new banks.

    Cut the public sector down to size. You can't tax and spend over 50% of GDP on the public sector and expect there to be a lot of free cash floating around for private sector growth. You can have a thriving public or a thriving private sector, not both. Pick a side.

  7. It doesn't add up...
    Posted July 29, 2010 at 8:28 am | Permalink

    The problem is what to do with the old banks. They really need to attend to sorting out their property loan books, rather than paying themselves bonuses and pretending it'll all be alright if they can ignore it for a few months more.

  8. StrongholdBarricades
    Posted July 29, 2010 at 9:25 am | Permalink

    So how are all these bodies going to address the large amount of form filling necessary to set up a "new" bank?

    A set of systems which, for an outsider, could be deemed anti-competitive

  9. Iain Gill
    Posted July 29, 2010 at 10:46 am | Permalink

    yea a british bank with european staff and call centres in the uk, and "back office" functions done in the uk by european nationals would be good

    im tired of subsidising the indian outsourcing movement with my tax bailouts to the banks

  10. Matthew Blackmore
    Posted July 29, 2010 at 12:47 pm | Permalink
  11. Steve Tierney
    Posted July 29, 2010 at 12:05 pm | Permalink

    If the banks aren't lending – forcing them to do so would be insanity. No matter what scheme, what plan or what guarantee – still crazy. It is tinkering with the markets which got us where we are – the solution is not more tinkering.

  12. Quentin
    Posted July 29, 2010 at 12:33 pm | Permalink

    Hasn't a new bank launching today called Metro?

    • Tapestry
      Posted July 31, 2010 at 6:47 pm | Permalink

      filipino bank

  13. Cath
    Posted July 29, 2010 at 12:39 pm | Permalink

    One of my clients was asked for a personal guarantee for an overdraft of £10,000. The bank had been happy, previously to have this facility unsecured. The business is small, but cash generative.

    Well done for championing this cause

  14. Edward
    Posted July 29, 2010 at 4:10 pm | Permalink

    Is it true that RBS senior executives are being incentivised to reduce the size of RBS's loan book at the same time that they are being told to increase lending?

  15. steves
    Posted July 29, 2010 at 8:58 pm | Permalink

    The only way to get new banks is to lower the barriers to entry

    Less/no regulation, no government intervention no forced lending, and definitely no printing of false money.

    First though we need to clear the deadwood – two options

    Tell the banks that they are not too big to fail and let amy or all fail

    or simply get the administrators to go in over a weekend, restructure let the bond holders/depositors/shareholders take the hit and start again with properly values and funded banks

    Then as said above get rid of all regulation, close the bank of england, remove govt deposit insurance and let anyone pint money let us use which currencies we want.

    The market will produce the winners (my bet is backed by gold/silver), we will then get a range of bank types, savings investment

    Just have one regulation, each bank has to declare risk, either in its printed money, its bank or its services offered. Let us them balance risk and return and decide for ourselves

    We will get sound money, no inflation, and a safe banking sector

  16. Anas Hassan
    Posted July 29, 2010 at 9:57 pm | Permalink

    It was good to see the launch of Metro Bank this morning. More banks like that would be welcome on the High Street. But they need to be competitive and I think Metro Bank is not quite offering anything unique other than a lovely shop interior with a lovely warm welcome. Which is always nice but it doesn't offer anything unique to pull customers away from the other banks.

  17. Kevin Peat
    Posted July 29, 2010 at 10:24 pm | Permalink

    And while we're on the subject of creating new banks …

    can we create a new system whereby fair-to-middling bankers are no longer paid footballer type salaries with bonuses ? Shouldn't a good wage be enough ? (No-one minds the true stars of banking getting their mansions btw)

    The argument that you must pay top dollar to get the best doesn't seem to apply to proper elites such as the SAS or RAF fighter squadrons – nor does it guarantee that we don't end up with a bunch of incompetents and idiots capable of causing such disasters as the Credit Crunch.

    (On a personal note – the banks really don't seem to mind getting tough with little people like me, as is my unfortunate experience at the moment. You may see me in the press and on TV soon. Having been required to bail them out with my taxes I expect them to treat me with a little more respect and consideration than I've been getting.)

  18. @JohnnyNorfolk
    Posted July 29, 2010 at 11:00 pm | Permalink

    If only previious governments had restricted the mergers of the banks, and that Mrs t had kept the building socs.as they were. if only, we would still have martins, Williams Glyns etc. Never keep all your eggs in one basket comes to mind

  19. Lindsay McDougall
    Posted July 30, 2010 at 4:43 am | Permalink

    Is it not the case that the LibDems would be quite sympathetic to breaking up RBS and LLoyds? If so, that would mean that the Governor of the Bank of Enland, most of the Conservative party and the LibDems are at the very least open to persuasion on the matter.

    Could it be that, yet again, the pro-European, pro fat cat, pro status quo Tory Wets are punching well above their weight, especially in Cabinet, and blocking reform? It's high time to do something about that.

  20. FaustiesBlog
    Posted July 30, 2010 at 9:38 am | Permalink

    We certainly do need more banks – and more sustainable banks.

    Iceland is in the process of setting up a bank based on the North Dakota bank, with deposits from local people, for local people – not a multinational casino bank.
    http://www.secretofoz.com/index.php?option=com_co
    http://www.banknd.nd.gov/about_BND/index.html

    Can we not follow suit?

  21. Conrad Jones (Cheam)
    Posted July 31, 2010 at 1:16 pm | Permalink

    The old regime of Banks is NOT customer orientated. No big surprise there. They do not provide a good service. They sell financial "Products". These so called "Products" (I think this term appeared about 20 years ago) are to aid the illusion that Banks produce something – they don't.

  22. Conrad Jones (Cheam)
    Posted July 31, 2010 at 1:17 pm | Permalink

    I visited my main Bank where my current account is to ask them if they had a safety deposit box I could hire to store important documents and/or valuables.
    'Computer says NO'. I went to another Bank and asked them 'Computer says NO'. I visited two other high profile Banks and asked them if they could help 'Computer says NO'. It's great that the new Metro Bank allows Dogs in it's Branches and is open for longer than any other Bank. But what would make the difference for me is that they have Safe Deposit Boxes – no other High Street Bank does this now. Yes – their Interest Rates are not competative, BUT; I'm not getting anything resembling a good interest rate with my current Bank – which is global and has recently announced huge profits. Any new business has to offer something new – in Metros Case, it's offering something old which the old Banks should still be offering. Their is good reason to be optimistic about the Metro Bank. I do not work for them by the way.

  23. Norman
    Posted July 31, 2010 at 8:31 pm | Permalink

    An interesting article by you in The Spectator. Reading between the lines I am getting a horrible sinking feeling that the government is thinking about cranking up the printing presses again.

    I hope I'm mistaken.

    We've just had two years of Brownonomics, no more please. Get public spending under control, it's the only way.

  24. Conrad Jones (Cheam)
    Posted August 1, 2010 at 11:54 am | Permalink

    I'd like to ask if anybody knows what Fractional Reserve of Deposited currency the new Metro Bank will be using? (10% , 5% ?)

    If (one of these new banks-ed) go bust (A run on the Bank by depositors) – will we (Taxpayers) have to bail them out? Or are they not big enough to worry about – like Sheffield Steel, Port Talbot Steel and Rover etc.

    Thanks in advance.

    Reply: Let us trust the Regulators and new bankers have a good model this time which keeps the trust of the people – then this issue will not be tested.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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