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Sunday, 19 January 2014

Vacuous and tedious

With 1% knocked off the share price of the taxpayer owned banks, Ed Miliband shows us how he is going to wreck the economy if he ever gets into power.

I am no fan of the UK high street banks, but Miliband's pathetic posturing does no good. HSBC, Barclays, RBS, Santander and Lloyds Banking Group account for the majority of bank customers and lending.  This Mr Miliband thinks is a bad thing, so he proposes to force them to sell off soe of their branches to a "challenger bank".

Obviously Mr Miliband has never worked in banking nor has he done much banking on behalf of an organisation.  First of all, it doesn't matter much where branches are located these days, unless you have to go to the bank and make a lot of deposits as many businesses do.  If as a business your branch gets sold, then you have the choice of either transferring to the new bank (upheaval as you start to deal with people who don't know you or your business) or ou change to a new branch of the old bank (ditto). Either way bad news.

Ah, but says Mr Miliband, the major banks have too much power. Well blow me.  Let's not forget why one bank has 30 million personal accounts.  I seem to remember that Gordon Brown and Victor Blank thought it would be a good idea if Lloyds took over HBOS. But is it really that bad? With 5 major banks and quite a few more minor banks and building societies competing in every town, and often 2 or more from the same banking group.

Five not enough for you, or maybe that's actually ten in the town where you live?  Then you can always use one of the internet banks such as Egg (actually Yorkshire Building Society) or First Direct (HSBC), failing which you can always open an account at one of the banks operated by the Co-op, Tesco, Sainsbury's, M&S or Harrods, and if that still doesn't work for you there are a few dozen foreign banks operating in London that offer personal current accounts to anyone who wants one.  So that is a choice of about 50, and Mr Miliband thinks there is a lack of competition.

Mr Miliband says he wants to cut the size of banks because there is a law that does te same in the US.  Well not quite.  There is a proposal to restrict the amount of non-deposit liabilities that major banks can take on, which would address the liquidity issues that caused problems for many UK banks, but that means more deposit taking branches not fewer.

The US  used to have restrictions on "interstate banking", i.e. banks that accepted deposits in more than one state.  That (largely repealed) provision was designed to avoid the "too big to fail" issue and to restrict a banking collapse to a limited area.  But why was it repealed?  Because within a state the number of banks that could operate profitably was limited, and the result was a lack of consume choice.

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