The Bankwatch

Tracking the consumer evolution of financial services

Some momentum in UK towards breaking up Lloyds and RBS

Lord Myners was financial services secretary from 2008 to 2010.  He indicates in this op/ed in the Financial Times that he has had a change of heart and recognises the British banks are simply to large and expose the UK economy to too much risk.

Break up Britain’s uncompetitive big banks | ft.com

To ensure a further contribution, Sir John should note that Britain’s banks are too concentrated and that each individually represents too great a portion of gross domestic product. Indeed its high operating margins and return on equity suggest the UK has one of the world’s most concentrated and least competitive banking systems. Two lines of inquiry follow. First, is such concentration good for banking and its customers, given there is no compelling evidence that scale provides economic or service gains? Second, after Sir John’s commission, will any of the banks remain too big to fail, financially or socially?

He goes on to make the case for more smaller and more nimble banks in order to encourage a healthy and lasting banking system.  Britain is similar to Ireland in that it has large banks that form a relatively large part of the British economy and carry implicit government guarantees by virtue of government ownership.  They form therefore part of the national debt in event of a failure.

Worse, consolidation has accelerated over the past decade, with the crisis leading to yet more mergers, increasing the power of existing banks. The implicit support the most important of these receive from government is now a competitive advantage and barrier to new entrants. Yet some argue it follows that these large, concentrated banks create a more stable system than a market filled with numerous, smaller competitors.

This is not necessarily the case. In fact, competition is not the opposite of stability or security – because stability emanates not just from size and status, but also from diversity and pluralism. Inadequate competition can produce excess profits, poor customer service and a dearth of innovation, none of which are likely to create a stable system

And finally this from here.
 
But Lord Myners’ views echo a growing belief that the five-member Commission on Banking, chaired by Sir John Vickers, will focus more on the issue of high-street competition than the complex structural question of whether retail and investment banks – “casino banks” – should be allowed to remain under one roof as so-called universal banks.
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Written by Colin Henderson

December 13, 2010 at 09:58

Posted in UK

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