One of the reasons banks in the UK are so unpopular is poor perceptions of the service they collectively offer.
Small and medium sized enterprise can be frustrated by the apparent lack of interest in them. The branch bank Manager no longer seems to have the power to develop a relationship and make intelligent judgements about credit needs and risks. Regional centres pursue box ticking exercises evaluating credit risk based on numbers in business plans, which may make mistakes both ways. The banks are inclined to lend to the good business plan designer, which may not be the same thing as the successful entrepreneur.
Individuals can be frustrated at the short opening hours of branches, not designed to help those with busy jobs. Counter queues can be irritating. There is not the same personal relationship between branch manager and customer that used to prevail. Despite having access to large amounts of personal financial information, banks are often bad at deciding what additional service to offer a client, and bad at forseeing problems with solutions that might work. People get unhappy about fees and charges.
There should be economies of scale in banking, but there can also be diseconomies. If salary structres reflect the overall size of the bank, individual salaries might be high to run good value individual or small business banking service. If a bank’s business section can make mega fees out of the largest companies, working hard for small fees from small business may seem less worthwhile. Seeking to streamline small business services too much to cut costs can simply remove the necessary personal judgements and relationships which customers want.
There has been a lack of choice in UK retail banking for some time, made worse by allowing mega mergers in the last decade that has cut the number of potential competitors on the High Street. Barriers to entry are large, given the costs of setting up a branch network and accumulating the capital needed to back a sensible bank. The Review should examine the scope for allowing more competitors in the UK market. Most observers agree HBOS and Lloyds should not have merged,. Maybe this should be revisited. New competition guidance could make it clear that future mergers of larger UK High Street banks will not be welcomed. We need to revisit the rules and ease of setting up new banks in the UK, to ensure proper competitive challenge. There is room for improvement of current customer service.
There is also a problem over the availability of lending for small and medium sized enterprises. This is the result of the current regulatory vogue to demand more cash and capital at the wrong point of the cycle. The Regulators have lurched from demanding too little cash and capital during the boom, allowing banks to become too risky and unstable, to demanding too much cash and capital at the trough. This makes banks unwilling to lend money to smaller and riskier customers as they see it. More of their cash and capital is needed to lend to the government, as lending to government counts as a low risk activity, leaving them with a stronger balance sheet in the eyes of the Regulator. The sensible wish to increase cash and capital reserves has led to a dramatic strengthening of bank balance sheets in the last year. The Regulator should now delay demanding further improvements, until the economy has hown decent growth for a a year or more.