I am glad the idea of more banking competition is now popular with Labour as well as with the Coalition and the Vickers Report.
Our current problems in banking emerge of course from the previous Labour government which aided and abetted the reduction of competition on a large scale. Before the crisis they allowed or even encouraged the acquisition of many banking assets and businesses by RBS, creating a bank which turned out to be too big and too badly run to succeed. During the crisis they added to the mistake by encouraging and allowing the merger of Lloyds with HBOS. I opposed both the RBS-ABN AMRO merger and the Lloyds-HBOS merger at the time, and thought both warranted a competition investigation.
Today the government is advancing plans to encourage more banking competition and to split up RBS. RBS has already shed its insurance activities, and is planning to sell its US bank. The Investment bank has been slimmed substantially. The new corporate plan is to slim the bank further by disposals and concentrate it on improving and developing a good UK High Street clearing bank business capable of servicing UK individuals and businesses as they need. TSB has been established as an independent bank again to offer more competition to the Big 4, with sales of branches and business by Lloyds. The government assisted the Co-op which also wanted to become a challenger bank, but that miscarried. Perhaps Labour could tell us a bit more about why that bank went wrong and what they have learned from their close association with challenger banking.
I welcome any workable plans to inject more competition more quickly into banking markets. However, I cannot see how a government can insist on divestment by Lloyds when it does not own it. It looks like a lop sided attack on that bank where the majority shareholders may have strong views and legal challenges against any such policy. Nor can a policy which limits a bank’s market share work well. It means that as a large bank approaches the ceiling it has no further wish to compete for custom.
The right way to limit market share is to block all takeovers of more capacity by banks that already have a large market share. This is something I assume is now policy but was not policy in the previous decade. Stopping banks winning more market share by being cheaper or offering a better service is the opposite of what we need.
I was pleased to hear Mr Balls on Radio 4 yesterday say there was ” a massive regulatory failure in the UK” before and during the crisis. I remember arguing that at the time, when we were told it was simply a case of bad banks. It was not just bad banking policy and behaviour at RBS and a few others but a big failure of the more complex rules and laws under Labour to stop a crisis. More banks and more competition will help. That is exactly what is now happening, with the emergence of several new challenger banks and the sale of assets and businesses from conglomerate banks under orders of the Competition authorities and as a result of a change of corporate policy.