Well done the Co-op

 

           Let’s hope the Co-op’s decision to withdraw from buying the Lloyds Bank branches will make the authorities think again. The Co-op said that the increasing regulatory burdens on UK banking made it no longer in  their interest to expand their banking business. The weak economy they said  also impedes decent profitability.  Indeed, they are reviewing their existing bank at the same time, and could decide to sell or cut that as well.

          It is good it was the Co-op which took this view. People who hate banks on the left of the conventional political spectrum will find it more difficult to criticise the Co-op when it stands up for the need for sensibly regulated and profitable banking. Their statement was moderate and considered.

           Most participants in  the banking debate have come round to the view long proposed here that we need more banks to offer competitive services. If we are to achieve this the Regulators have to be realistic in their demands for cash, capital and staffing levels. The market has to sustain profitable banking, however loud the cries of bank critics everytime a bank dares to make a profit. It is profits that allow banks to increase their capital base and sustain more lending to people and companies that can make good  use of it.

           It is a difficult debate to conduct, against a background of such hsotility to banks and bankers whipped up by polticians keen to find a group more unpopular than themselves. The Archbishop of Canterbury called for the break up of RBS, a sensible cause. He did, however, also state that the banks had made two big mistakes – borrowing short and lending long, and lending to people who could not repay.

         The truth is all banks have to borrow short and lend long to some extent. That’s how they make their money.  Some current and on demand deposit account money can be lent to others for longer periods, as long as the bank keeps enough cash to handle demands for withdrawals.

          They also have to lend to some people that will not in the end be able to  repay. They back businesses, and not all will succeed. Good banks manage the risk of the different term structures on their balance sheets without misadventure, and keep the numbers of defaulting clients under control.

          We need more banks. The Regulators are still not getting it right.

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61 Comments

  1. lifelogic
    Posted April 25, 2013 at 5:33 am | Permalink

    Capital requirements, regulation and accounting rules were too weak and now are too tight. A sensible decision from the coop given the regulatory stance.

    Customers however need more competition in banking as the banks are currently able to exploit good customers just to fill the holes made with their idiotic gambling on complex pieces of paper.

    RBS/Natwest in particular has treated good customers with complete contempt over the past 4 years. Their share holders with even more contempt, with their interesting accounts and rights issue.

    • lifelogic
      Posted April 25, 2013 at 5:42 am | Permalink

      Meanwhile the BBC has decided the US is doing better because it is not doing as much austerity. It might of course have more to do with a tax burden around 27% rather than one pushing 40% in the UK, far cheaper energy, economies of scale and not being in the basket case EU.

      Also not having to suffer the absurd BBC, setting the ever bigger state, pro EU, ever bigger taxes and quack green energy agenda.

      • uanime5
        Posted April 26, 2013 at 2:21 pm | Permalink

        Though the US collects less in taxes as a percentage of GDP it also provides worst healthcare, education, welfare, and infrastructure. Low taxes have a price.

    • Ralph Musgrave
      Posted April 26, 2013 at 7:19 am | Permalink

      As Mervyn King pointed out, the depositors at mutual building societies are in effect the shareholders: i.e. those institutions abide by a 100% capital requirement. But they manage to compete with banks which have 4% or so capital requirements, which you claim to be too “tight”. Explain, please.

  2. Kevin R. Lohse
    Posted April 25, 2013 at 5:36 am | Permalink

    The point about banks being the scapegoats for politicians is well-made. Gordon Brown’s Mansion House speeches make clear just how gratified he was that the financial sector following his bidding to lend unconditionally, and the lack of oversight by the regulators and the Treasury under his watch, contributing materially to the bust, is now a matter of record. The present government, as you point out, has been content to go with the flow of left-wing negative propaganda and bash the bankers for political reasons. A sizeable contribution to UK GDP must come from the banking sector if the economy is to show any growth. Continual gross abuse of the golden goose will not provide that growth.

    • uanime5
      Posted April 26, 2013 at 2:23 pm | Permalink

      The financial industry makes up 10% of GDP with the City making up 2% of GDP. So as long as the other 98% of the UK economy grows it won’t matter if the City doesn’t grow.

      • Edward2
        Posted April 27, 2013 at 12:09 pm | Permalink

        More duff statistics again Uni,
        There is a sector called “services” which comprises over 70% of GDP and this sector includes many more financial service companies and insurance companies which are involved in finace and banking.

  3. SadButMadLad
    Posted April 25, 2013 at 5:50 am | Permalink

    When watching the C4 programme “Bank on Dave”, it became quite obvious that the regulatory regime for banks was very burdensome. The moment came when a manual about a foot thick containing all the regulations was placed on the table. Another indicator was the information that no new banks had been started for many decades (except Metro Bank).

    All regulations do is make it harder for business to start and allow existing businesses to get bigger. Excessive regulation is a barrier to free markets.

    • lifelogic
      Posted April 26, 2013 at 6:56 am | Permalink

      Indeed barriers to entry regulatory and those put in place by the existing banks are far to restrictive. More competition is needed.

    • uanime5
      Posted April 26, 2013 at 2:25 pm | Permalink

      Just because some industries have a lot of regulation doesn’t mean this regulation is excessive. The pharmaceutical industry has far more regulation yet they are able to survive.

      • Jerry
        Posted April 27, 2013 at 11:26 am | Permalink

        @U5: “The pharmaceutical industry has far more regulation yet they are able to survive.

        Indeed, mostly at the expense of the NHS though!…

  4. APL
    Posted April 25, 2013 at 6:14 am | Permalink

    “Let’s hope the Co-op’s decision to withdraw from buying the Lloyds Bank branches will make the authorities think again.”

    Last word in that statement is redundant.

    1. The CoOp recognises the economic conditions in the UK are not ripe for expansion at the moment.

    2. They probably recognise the FIRE economy has come to the end of its life and that to buy into a failing business now, when they can probably wait five years and get the same assets for half the price, would be reckless.

    3. Let’s hope we don’t see the same sort of forced amalgamation that we saw with Lloyds and HBOS, the private mining companies, the private steel companies and the private rail companies or the independent motor companies. Because the one thing we should have learned from all those experiences, the civil service knows absolutely nothing about running a successful business.

  5. Mike Stallard
    Posted April 25, 2013 at 6:21 am | Permalink

    Did you see the programme on the Bank on Dave? He was a man who wanted to start up a local bank and be Mr Mainwaring. Endless bureaucracy (now there’s a surprise) prevented him.
    If we had a lot of small banks, we would be back in Victorian times when they sometimes went belly up. That would mean voters losing their money. (“The way we live now” etc).
    Now we are losing our money anyway through threatened and actual inflation and an economy that is very sluggish. And, if the State goes bankrupt (which I see as a real possibility), we stand to lose everything.
    So – goodnight FCA and regulations! Let a thousand flowers bloom!

  6. Andyvan
    Posted April 25, 2013 at 6:22 am | Permalink

    “The Regulators are still not getting it right.”
    Can anybody remember a time when they did? Every regulatory body set up by government puts up costs, degrades services and impedes progress whereas free markets regulate themselves and constantly act to improve services. The Co Op has spoken for very many businesses in the UK and elsewhere when they point out that regulation kills investment and expansion. Banking has a giant leech on it’s back called government but so does every other business to some degree.

  7. margaret brandreth-j
    Posted April 25, 2013 at 6:53 am | Permalink

    Banking problems scare most. We do not all want to put money under our mattresses and that would be the only option with the collapse of the banking system.
    The CO OP has always stood out as a bank with a difference. It is the bank which states that it will only invest in ethical projects and to some extent I have been aware that it follows its principles.
    Banking is the back bone of the economy and the recent scandals with the whimsical changing of the LIBOR rate and the large bonuses have changed the public perception of the banks from solid and dependable to a type of mafia banking. My question is if banks are broken up into smaller concerns will they still be able to take on the large investments needed for growth of the larger companies?

  8. Johnny Norfolk
    Posted April 25, 2013 at 7:22 am | Permalink

    The Co-Op looked into the real world for once and backed away.

    They were right to do so.

  9. frank salmon
    Posted April 25, 2013 at 7:49 am | Permalink

    What we need is a banking system that operates in a competitive market, without government dictat or monopoly manipulation.

  10. MickC
    Posted April 25, 2013 at 7:51 am | Permalink

    The problem with your analysis is that not only is the Co-op not particularly good at banking, it is not particularly good at anything.

    With the goodwill and brand recognition which the Co-op once had, it should have done very well in the grocery field-but in fact Tesco took its customer base. In turn the likes of Aldi and Lidl are eating into Tescos space (and everyone else’s!) when that should been the Co-ops strategy.

    The reason given for the decision not to buy the Lloyds branches smacks very much of a lame excuse by mediocre and complacent management, rather than a true and sound business decision.

    If the banks are relying on this as evidence of over-regulation, they will be disappointed.

  11. Gary
    Posted April 25, 2013 at 8:07 am | Permalink

    Calling for competition as the panacea for the banking problem, is like calling for competition as the panacea for the mafia problem.

    What will solve the banking problem is to immediately stop all taxpayer underwriting of bank risk and abolish the central banks.

  12. English Pensioner
    Posted April 25, 2013 at 8:37 am | Permalink

    I suspect that the Co-operative is not the only company to decide against increasing its banking commitment. A few years back, two of our major supermarkets were talking of entering the business and having a branch in every store, but of late little has been said and they seem now to be just sticking mainly to their credit card business.
    In any case, a relatively small bank taking over one that is double its size could end up with the “tail wagging the dog” and bring down the whole existing bank, as happened with Lloyds and their foolish take over of HBOS.

  13. Robert K
    Posted April 25, 2013 at 9:02 am | Permalink

    The thing that beats me is why the government finds all this so difficult. It’s been more than five years since the banks were nationalised. Think what was achieved between 1979 and 1984 or between 1984 and 1984 and weep!

  14. Robert K
    Posted April 25, 2013 at 9:03 am | Permalink

    The thing that beats me is why the government finds all this so difficult. It’s been more than five years since the banks were nationalised. Think what was achieved between 1979 and 1984 or between 1984 and 1989 and weep!

  15. Jerry
    Posted April 25, 2013 at 9:15 am | Permalink

    We need more banks. The Regulators are still not getting it right.

    Indeed (hopefully run as mutuals…), but isn’t it funny how some on the right keep blaming the last Labour government and/or Mr Brown for the crash of 2007/8 because the banks/regulation went bad, but now it is simply the banks/regulators fault and not those who regulate the regulators… In other words John, your lot are in government (I can’t see the LDs objecting [1]), if the regulation is wrong then fix it, your party needs to stop passing the buck (or stop complaining that it’s all the fault of the last government)!

    Oh and was it not the previous Archbishop of Canterbury who made those comments regarding banking?

    [1] unless what you really mean is that there is to much regulation, that there needs to be even more de-regulation

  16. a-tracy
    Posted April 25, 2013 at 9:15 am | Permalink

    Don’t you think banks are a bit between a rock and a hard place when financing business loans. Years ago when we started out securities were demanded against any of your personal assets usually your family home; regular audited accounts to prove your financial validity by a qualified auditor were expected every year; and the Manager was much more in tune with your future projections, aspirations and problems. Then we seemed to have a free for all phase; limited if any securities, easy bankruptcy advice on the internet.

    We had solid Building Societies to borrow from for home purchases such as the Halifax, Britannia and the Abbey all swallowed up by high risk dealing banks, previously these were mutuals giving a good return to their savers for the safer mortgage loan market as they used to demand more security and only borrowed low multiples on earnings. Then things went crazy and people I wouldn’t borrow £50 to were given massive loans without any proof of earnings, were given extra mortgage loans for holiday purchases against potential market gains on their property. Who took all the controls off? Who said companies didn’t need auditing? Who decided to change the laws on insolvencies, debt write-offs and easy bankruptcy? When did it all start going to the highest gamblers and spendthrifts?

  17. waramess
    Posted April 25, 2013 at 9:40 am | Permalink

    You say:”The truth is all banks have to borrow short and lend long to some extent. That’s how they make their money.”. A very unsafe premise. Banks used to make their money by having a better credit rating than the people they lent money to and borrowing short whilst lending long was regarded as too risky:aka Libre Bank.

    Your persistence in pushing for banks to lend money when clearly there is little appetite to do so overlooks the fact that long term money is available in abundance through Share issues and through public and private issues of loan stock.

    Just look at the bubble that has emerged in the share market; investors are ravenously hungry for new issues but there are few IPO’s.

    If you think growth is just being held back by the lack of bank lending there are plenty more opportunities on offer to sound companies from the stock market. Maybe you are backing the wrong horse

  18. PT
    Posted April 25, 2013 at 10:00 am | Permalink

    John, what are your thoughts on Funding for Lending being extended to Buy-to-Let investors? This is in addition to successful government lobbying to exempt BTL from mortgage regulation, allowing landlords and speculators to continue benefiting from interest only mortgages. Every housing related scheme from this government seems to be targeting towards pushing house prices upwards, rewarding affluent landlords, rent seeking and the asset rich, all whilst punishing younger folk.

    Please respond!

  19. Mark
    Posted April 25, 2013 at 10:05 am | Permalink

    Brown fed Lloyds a hospital pass when he “encouraged” them to take on HBOS. A previously sound, if unadventurous bank was turned into a basket case. I’m sure that the Co-Op realised they risked becoming a “bad bank” if they took on basket case assets handed to them out of that portfolio.

    The banking sector element of the Public Sector Net Debt is £972bn. That compares with £1,266bn of mortgages outstanding across all providers, or £3,708bn of Sterling assets and £4,457bn of foreign currency assets, or £8,165bn of assets in total for the banking sector. It could be rather better deployed than it is at present – but to be useful, we first have to stop propping up the property market and allow to correct, so that banks can feel secure that they will not see their balance sheets hit by the inevitable correction. There is of course a different problem with banks’ foreign assets to low grade debtors. The most recent Financial Stability report from the BoE had this to say:

    As has been emphasised in previous FPC recommendations, the Committee assesses the risks from the euro area to be considerable. While the immediate risks have reduced, there remains a possibility of disorderly outcomes, which if they occurred would have major implications for UK financial stability. But it is impossible to determine in advance exactly how risks may crystallise or the precise impact that they would have on the UK banking system. While UK banks have significantly reduced their direct exposures to sovereigns and banks in vulnerable euro-area economies, exposures to non-bank private sectors in these countries are likely to remain significant for some time, unless they sell loans or businesses.

    Historical experience suggests that more rapid progress in tackling balance sheet problems would support improved funding conditions and the ability of banks to extend new loans to households and businesses.

    I agree: businesses are reluctant to borrow from banks who may get into trouble and recall the loans or impose onerous conditions. Households are reluctant to take on mortgage debt at bubble prices, and have less spare money to invest or spend while they are paying inflated rents.

    Banking sector balance sheets:

    http://www.bankofengland.co.uk/statistics/Documents/bankstats/current/tabb1.4.xls

  20. Roger
    Posted April 25, 2013 at 11:12 am | Permalink

    People need to be reminded that the mainly banking financial services industry pays £60billion a year in tax i.e. two thirds of the education bill/more than the defence bill. It is our biggest and best industry and attracts some of the most intelligent and driven people in the world – who yes, do earn very high salaries. The bale-out of RBS and Lloyds cost the tax payer £80billion – not a lot more than one year’s tax receipts from the industry. We need to let the banks work again properly. If we continually bash them and add regulations then the industry will die and the country will be massively the poorer.

    • uanime5
      Posted April 26, 2013 at 2:47 pm | Permalink

      The financial industry represents 10% of GDP, while the City only represents 2% of GDP. In 2012 the total tax revenue was £592 billion or 38.5% of GDP, so the financial services industry’s contribution was equivalent to 10% of the total tax revenues or 7.3% of GDP.

      So the entire financial industry isn’t as important to the UK as you made Roger and the City is even less important.

      • Edward2
        Posted April 28, 2013 at 6:20 am | Permalink

        More duff statistics Uni.
        First you miss off all the financial services and insurance industries which are classified as “service industry” with your very tight definition of “The City”
        Secondly, even based on this flawed base, your arithmetic only confirms the huge annual tax bill the banking sector pays.

  21. Ralph Musgrave
    Posted April 25, 2013 at 11:26 am | Permalink

    Advocates of full reserve banking, of which I am one, do not accept JR’s idea that “all banks have to borrow short and lend long to some extent.”.

    Under full reserve, depositors have to choose between two options. One is to have their money kept 100% safe (e.g. lodged at the central bank where it will earn little or no interest). In that case, interest would probably not cover the bank’s costs, so banks would make their money by charging for those accounts (something that already happens on some current accounts, my Lloyds account for example).

    The second option is for depositors to let their bank lend on or invest their money. But in that case the depositor (not the taxpayer) foots the bill when it all goes wrong. Plus the bank AS SUCH does not borrow in the sense that it does not borrow any specific sum of money. To repeat, if the value of the investments made by a bank halve, then depositors get back half of what they put in.

    • uanime5
      Posted April 26, 2013 at 2:48 pm | Permalink

      In your plan was ever implemented expect people to put their money in foreign banks where they get interest and are protected if something goes wrong.

  22. Old Man
    Posted April 25, 2013 at 11:32 am | Permalink

    Off subject,
    Another old eton boy at number 10?
    Economy flat lined?
    Just been listening to Will Hutton on the TV – Give him Osbourne’s job

    • lifelogic
      Posted April 26, 2013 at 7:06 am | Permalink

      Will Hutton is even more daft than the IHT ratter Osborne.

      We just need to stop the endless government waste and reduce the squeeze on the productive. Lower taxes, lower energy prices and fewer pointless regulations. It is all rather obvious.

      • Old Man
        Posted April 26, 2013 at 11:49 am | Permalink

        I settle for anyone else doing Osbourne’s job.

  23. Demetrius
    Posted April 25, 2013 at 12:26 pm | Permalink

    But, and a double but, is it also an admission that the days of branch banking as we know it are going through a radical change with the advance of the internet and all its facilities? For my money the time may be near for a few multi-bank locations serving the clients of several banks in place of each bank needing to run its own dedicated branch which will have limited use basically for those unable to use or access the net.

  24. Pleb
    Posted April 25, 2013 at 12:58 pm | Permalink

    Im hoping for a UKIP/Con coalition in 2015. That might get something actually achived.

    • Edward2
      Posted April 26, 2013 at 3:55 pm | Permalink

      Yes Pleb I agree and if I may indulge in a little fantasy: David Davis as PM, our host as Chancellor and Daniel Hannon as Foreign Secretary
      Just need to think of a job for Nigel Farage….

  25. uanime5
    Posted April 25, 2013 at 1:07 pm | Permalink

    The Co-op said that the increasing regulatory burdens on UK banking made it no longer in their interest to expand their banking business. The weak economy they said also impedes decent profitability.

    Given the poor state of the economy even light regulations could make a bank unprofitable. Were the UK’s economy stronger these regulations will be a more minor factor.

    The market has to sustain profitable banking, however loud the cries of bank critics everytime a bank dares to make a profit.

    The main complaints weren’t that banks were making profits but that their senior executives were paid too much, and that bankers were paid massive bonuses for “good performance” irrespective of whether the banks were making a profit or loss. This is why there’s a limit on bankers’ bonuses but not on banks’ profits.

    Regarding the growth in the economy this quarter I’d like to point out a few things.

    1) The OBR is predicting annual growth of 0.6% and the IMF is predicting annual growth of 0.7%.
    2) Most economists were predicting growth of 0.1% this quarter.
    3) Most growth of this growth has come from a 0.6% increase in the services sector.
    4) It would be politically embarrassing for the Chancellor if there was a triple dip recession.

    So while it’s entirely possible that the UK had half their predicted annual growth in one quarter and that the Government didn’t give more money to the services sector to promote growth this quarter I suspect most people will remain sceptical of ONS figures based on 40% of the data.

  26. Garfield
    Posted April 25, 2013 at 1:23 pm | Permalink

    Good news for Conservatives, too
    What is the difference between the Coop and the Labour Party?
    Less profits, less MP s for the Coop to sponsor?

  27. Mike Wilson
    Posted April 25, 2013 at 1:25 pm | Permalink

    I think there is a lot of nonsense being spouted about banks. The nature of the fractional reserve banking system means EVERY bank, by definition, is potentially at risk of not being able to cover demands for withdrawals.

    That is not the issue. The issue is that ALL lending institutions lent indiscriminately into the housing market – under the illusion, presumably, that house prices could, and would, go up forever.

    The sheer, rank stupidity of this means that no bank or building society executive in charge during this madness should still be in a job. But, hey-ho, most of them still are.

    And what is the government doing about the consequences of this banking industry madness? The consequence being, of course, that either the next generation are completely and utterly priced out of the housing market – or there has to be a major house price correction.

    The answer is that the government is doing anything and everything it can to entice the next generation into the housing market by providing the deposits they cannot save. Come on in you youngsters. The water is lovely again. You don’t need to save for deposit … but you will need a massive mortgage taken out at the lowest interest rates in living memory. Still – who cares? As long as our precious house prices stay up.

    Quite what will happen when, eventually, interest rates go up does not bear thinking about.

    Banks will lend us all made up money until we are all debt slaves. It is the government’s job to regulate banks to stop this happening. It is not the government’s job to try to buck the market and keep house prices, artificially, at prices that are between 2 and 5 times too high, depending on which region of the country you live in.

    Of course, a day of reckoning approaches. You cannot delay the inevitable forever. In 20 years time we’ll have a generation of 50 year olds still living with Mum and Dad.

    Reply Lending against houses would also still work if house prices were stable.

    • Mark
      Posted April 26, 2013 at 1:25 pm | Permalink

      It’s not so much the stability of house prices – they have not been quite so volatile of late, because of measures that temporarily prop them up – but how much of a bubble premium there is. A large bubble premium carries risks for buyers and lenders, as well as diverting money from the real economy and savings for retirement. As I pointed out the other day, rising house prices have if anything a negative correlation with re-election, so it isn’t in government politicians’ narrow interest either.

  28. Richard1
    Posted April 25, 2013 at 1:31 pm | Permalink

    Which company or entrepreneur could possibly want to risk time, money and reputation developing a ‘bank’ in Britain? If they make any kind of a success, resulting in profit or high remuneration for individuals they will be lambasted in the leftwing, and even the populist right-wing press, and politicians, especially on the left, will propose taxes and regulations in order to make sure the success doesn’t continue.

    What we urgently need in British banking is proper market mechanisms to discipline participants and more competition. That means banks need to be able to fail like other businesses, and where there is success, owners and employees need to be able to reap the rewards without opprobrium.

    • Mark W
      Posted April 26, 2013 at 5:55 am | Permalink

      Indeed.

      You’d need to be out of your mind on drugs to want to get into banking. A far faster result would just be to ask someone on the left to beat you up. Save a lot of effort for the same result.

      • Bazman
        Posted April 26, 2013 at 5:03 pm | Permalink

        Not if you are a bank ‘manager’. As for being lambasted. Do you think they deserve praise? Letting bank fail in the casino world of banking is fine for the rest of the country we just need a bank that does not fail.

    • uanime5
      Posted April 26, 2013 at 2:56 pm | Permalink

      If banks are to be like any other business then the first thing they should stop doing is giving their directors bonuses when their business isn’t making a profit.

      Also if deposits aren’t guaranteed by the state expect riots to break out when banks go bankrupt and depositors lose their savings.

      • Richard1
        Posted April 27, 2013 at 9:42 pm | Permalink

        I agree there has been excessive pay, its part and parcel of the subsidy – the unique ability of banks to build huge balance sheets on limited capital, to fund at subsidized rates and so generate ‘profits’ that justify the high pay. We need to cure the disease (the subsidy) not the symptoms (the pay).

        Its not the case depositors would be rioting if banks were allowed to fail. A proper resolution regime would mean depositors were covered except for huge losses, and even then the govt, or an insurance scheme, could cover up to, eg, £75,000.

  29. davidb
    Posted April 25, 2013 at 3:59 pm | Permalink

    The short borrowed money is multiplied up to lend long. Whats shortest of all is the change of the depositors who get below inflation ( then taxed!) interest on the 10% of bank capital they provide which is then lent long at above inflation variable compounded rates.

    I would wonder if some system of bonds could be the way mortgages are financed. I am saving mostly for retirement which is still 15 to 150 ( on present trends ) years away. I would like to safely bank money long at or exceding inflation ( and not taxed! ). Yet instead I have to shuffle ISA’s every year as those long lending banks try to short their interest obligation, and rarely get close to inflation in interest. Maybe banks should have just been allowed to go bust and be reinvented in the first place.

  30. Lindsay McDougall
    Posted April 25, 2013 at 4:10 pm | Permalink

    Now Lloyds propose to rebrand the 600+ branches as TSB and rebrand the parent company as Lloyds. Fair enough but the Government should force a sale of the rebranded TSB. Any potential buyer would be more or less obliged to carry out rigorous due diligence, which would include full disclosure of which assets are still toxic (unless Lloyds propose to retain all these) and an assessment of the likely effects of the combination of increased competition and increased regulation. Such a forced sale would place a lot more information in the public domain, where it should be.

    What is interesting is that the Co-op did not publicly say “We will still buy if you reduce the asking price to £x billion.” That suggests that the gap between Lloyds and the Co-op is wide.

  31. Alan Wheatley
    Posted April 25, 2013 at 5:22 pm | Permalink

    When the Co-op come to reviewing their existing bank, they would do well to look at how they could run a banking business melded with their existing retail stores.

    As a Co-op member it seems strange that I can not access their banking services other than through the bank branches. This contrasts with the banking services that I can access through all the Post Office Branches. Indeed, there has been a move to put Post Office branches into large retail premises, replacing the Post Office in its own premises. It seems to me it would be a simple and cheap (relatively) for the Co-op to add banking services to all their retail stores.

    Of course, there is a practical limit to the range of banking services that it would be practical to provide, but surely normal retail banking needs are modest. And more complicated matters could still be dealt with at a Co-op bank, or even better in this connected world, via video link in a private room at your local Co-op to the full bank facilities.

    Private account and small business accounts need more competition. The Co-op already has a large number of members, many like me who do not use their banking facilities because they are not available where I live. But if I could access the majority of what I need the majority of the time from my local Co-op store the appeal would be considerably different.

  32. Chris S
    Posted April 25, 2013 at 6:44 pm | Permalink

    Borrowing short and lending long is the inevitable flaw in banking and it’s why placing cash in a bank, cannot and should not be, without risk.

    The fact that the state offers a very generous guarantee to savers, underwritten by the taxpayer, is a form of subsidy not available to investors who do a great deal to help the private sector by investing in equities. Why should cash savers be treated is a more favourable way than investors ?

    I would like to see state guarantees replaced by an insurance scheme which could be bought by savers on a voluntary basis. The insurers offering cover would have a vested interest in keeping a close eye on the health of the banks and different premium rates would give savers a good steer on which banks are a safer bet.

    The risk would be relatively low so premiums would be very small and could be collected by direct debit as a percentage of the interest paid on the account through the year. Naturally banks would not be allowed to sell the insurance or be paid commission !

    I very much doubt whether Fred the Shred and his friends would have been able to bring a substantial proportion of UK banks to their knees if it were insurers looking over their shoulders rather than Gordon Brown and his proxies at the FSA.

    Reply Borrowing short and lednign long need n ot be a flaw. It usually works. People deposit money short term, banks lend some it on longer term because not everyone will turn up next day and want their money back. If there is a day when too many want money back the Central Bank is meant to lend the commercial bank the money to tide it over until deposits return.

    • Denis Cooper
      Posted April 26, 2013 at 10:47 am | Permalink

      I agree with the idea of using commercial insurance to protect retail depositors, but given the very large numbers of retail depositors with any High Street bank or building society it wouldn’t make much sense for each of them to take out their own personal insurance when the depositor taker could arrange insurance for all of them, and after all the premium rate would depend upon the soundness of the bank or building society and not on anything to do with the depositors.

      However even if a licensed deposit taker was required to both spread the risk and arrange for some redundancy in the insurance, say as a simple example by having three separate insurers each covering up to 50% of the total deposits in its “insured accounts” at any time, at the extreme it could still end up with the state having to step in to rescue an insurance company, as in the case of AIG.

  33. Jon
    Posted April 25, 2013 at 7:03 pm | Permalink

    Yes and its not the only area that the authorities have hit. A long time ago financial advice was available to all, it flourished and in Thatchers era we ended up with low debt and a pensions and savings status that was the envy of the world. They changed all that. One of the boasts is that 90% of the population will never receive any dodgy advice from a rogue adviser. Thats true because 90% of the population now don’t have access to independent advice. To rid the dodgy 1% or so bad advisers to 90% of the population they removed the affordability of advice to the 90%.

    The authorities view of financial services of the last 2 decades is to remove the opportunity of bad outcome. In other words the best way to remove house burglary is to get rid of houses. The financial services industry delivers 20% of our tax revenues, more than the funding of the NHS. We need a completely different direction.

    • uanime5
      Posted April 26, 2013 at 3:00 pm | Permalink

      According to another post on this blog the financial services industry only pays 10% of our tax revenues. Perhaps you should post how much the financial services industry contributes in tax revenues so it can be compared to the total tax revenues.

  34. Robert Taggart
    Posted April 25, 2013 at 10:33 pm | Permalink

    Well done ? well…
    This ‘Rightist’ ‘Co-operator’ would appreciate a few more branches !

    Lloyds TSB should be broken-up, but, only after RBS !!

  35. Mark
    Posted April 25, 2013 at 11:01 pm | Permalink

    I see the Bank of England announced

    the FLS will be expanded to count lending by banking groups involving financial leasing corporations and factoring corporations, which can be important sources of finance to some SMEs, and certain mortgage and housing credit corporations.

    It is understood that BTL landlords are to be the main beneficiaries of up to £80bn of lending, on top of the 14% of all mortgages that are already for BTL, and compared with £16.4bn of new mortgage lending to BTL in 2012.

    This is surely insane: it supports bubble property prices while sucking in investor funds that will be eradicated when the bubble can no longer be sustained; excludes first time buyers form the market, forcing them to rent from BTL landlords who can get larger mortgages on more favourable terms; adds to the burden of Housing Landlord Benefit paid in support of rents that are otherwise unaffordable; adds to the numbers who will find themslves in negative equity and at risk of repossession in due course; adds to banks’ future balance sheet problems.

    Did anyone think this through at all?

  36. rd
    Posted April 26, 2013 at 3:34 am | Permalink

    It was, of course, a mistake to ever invest taxpayers money in a failed business’s – even if they are banks. If (named bank-ed) is insolvent wind it up and sell it’s assets. Then liberate the market so others can enter.

    Reply Bank A is not insolvent. It is a regulated bank trading with full permission of the experts who have to certify its solvency.

    • MickC
      Posted April 26, 2013 at 7:27 am | Permalink

      Response to Reply

      Ah, experts! These are the same experts who got us into this position, aren’t they? So their “certification” is meaningless, isn’t it?

      The world and his wife know that the banks are insolvent, which is why the economy is not recovering. Experts and indeed politicians can deny it all they want, nobody believes them.

      Having seen what happened to Japan, the West blithely followed-because our leaders were and are too stupid to do otherwise.

    • Denis Cooper
      Posted April 26, 2013 at 10:19 am | Permalink

      After the Nick Leeson episode the Bank of England had to let Barings go bust in 1995, which was not too damaging for the economy as a whole because it was no longer systemically important.

      That hadn’t been the case back in 1890, when Barings was about to go bust but the Governor of the Bank of England arranged a rescue by a consortium of other banks in order to avoid a financial collapse not just in this country but worldwide.

      In principle “let it go bust” is the correct approach, but in practice with a bank like RBS the economic damage would be too great.

  37. Roy Grainger
    Posted April 26, 2013 at 8:27 am | Permalink

    “It is a difficult debate to conduct, against a background of such hsotility to banks and bankers whipped up by polticians keen to find a group more unpopular than themselves”.

    Oh I don’t think the hostility has been whipped up by politicians, it is genuine.

  38. David Langley
    Posted April 26, 2013 at 8:29 am | Permalink

    Banks are about usury, there are no principles involved other than taking deposits and paying out interest. The management of account services (free banking) is costly but financed by the monthly deposit of wages and earnings. Its a poor service when faced with high inflation, low real costs of living, and rubbish interest rates continually being lowered. Would you want to run banks in those conditions, certainly not.
    The only thing that gave them joy was the casino arms of the bank, take that away and what you have left is a banking system with no human face just a money machine like the hole in the wall cash dispenser and my computer. Little profit and little interest.
    Bring back the bank manager with local knowledge and local expertise who will lend and grant good financial advice to the young and old respectively.

  • 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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