Last week there was an apparent disagreement betweent he Governor and the Chancellor over the dangers of mega banks. The Governor rightly warned that some banks are too big to fail, implying something should be done to stop this. The Chancellor seemed to be more accepting of very large banks, and was more in favour of demanding more capital and more liquidity – a happy request for him at a time when he needs banks to buy more government debt!
I am with the Governor to this extent. I do think some UK banks are too big for comfort, and there is too little competition on the High Street to lift service standards and foster innovation. The answer to this lies not with a new Glass Steagall or some other regulations, but with competition law, and with the government as owner of two of the large banks.
In future the Competition Authorities should be allowed to block mega mergers of banks, and encouraged to do so by a clear banking competition policy. I was against both the LLoyds/HBOs merer and the RBS/ABN Amro merger. These mergers damaged the markets and the shareholders. They should have been stopped by the authorities.
The UK government can fashion a more competitive banking sector by splitting up RBS and LLoyds before returning them to full private sector ownership. This will the topic of a future blog.