The Bankwatch

Tracking the consumer evolution of financial services

UK Cameron moves to use Government ownership influence with Banks to address their lack of acceptance of role in 2008 crisis

As it became clear in 2009 the influence of Government on banks that the took control of that year had to become a consequential factor in how those banks operate.  My hypothesis at the time was that those banks would lose the innovation incentive and in effect become utilities that provide a basic banking service.

I am surprised it took this long, but David Cameron has made the first consequential step by setting a very low limit on bank bonuses on RBS and it appears to also impact all government owned banks so Lloyds and HBOS too.  The piece is headlined in reference to the Knighthood Gordon Brown gave to Sir Fred, but while amusing that is not the point here. 

PM signals ‘Fred the Shred’ could be stripped of knighthood | The Times (subscription)

He also said that the cash element of bonuses paid this year to staff at RBS, which is 83 per cent owned by the taxpayer, would be restricted to £2,000, the same as last year.

Relevance to Bankwatch:

The larger point is that this signals a sea change in how banks operate and the first consequential change since the banking crisis.  I firmly believe there needs to be a solid banking system available for those who are risk averse.  This used to be provided not just by banks, but by Trustee Savings Banks and those days are well gone.  A shift that encourages utility banking will bring that back.

Wells Fargo is doing a great job and has publicly announced getting back to basics, as has Lloyds Bank.

This will result in natural competition which will arise from newcomers and prospective customers can make their own educated estimates of the risk and reward with those newcomers.  In fact there is no reason newcomers cannot re-use utility banks as their safe and secure ‘engine’ for access to bank accounts, and payments systems, while they provide innovative and flexible front ends.  We are already seeing beta testing of such operations (Movenbank).

In any event things are not the same following the intervention of Government, but it might just germinate the customer focussed creativity that never came from the big banks.

Written by Colin Henderson

January 19, 2012 at 13:33

Posted in Uncategorized

%d bloggers like this: