It is easy to produce banker bashing sound bites in bonus season. But as Ed Miliband recently showed, it is rather harder to stop rhetorical flushes damaging the value of our unintentional investment in RBS and Lloyds.
Toby Fenwick is a research associate of CentreForum, the liberal think tank
It is easy to produce banker bashing sound bites in bonus season. But as Ed Miliband recently showed, it is rather harder to stop rhetorical flushes damaging the value of our unintentional investment in RBS and Lloyds.
Miliband’s plan to create “challenger banks” by referring the banks to a Competition and Markets Authority investigation raises both philosophical and practical questions.
First, it demands that there is insufficient competition in the small business banking market, and that this lack of competition is resulting in small businesses being denied lending. This is an untested assertion, which, as Vince Cable has pointed out, ignores the fact that there are already challengers (Santander, Metrobank, Handlesbank, NBNK) in the marketplace.
Second, Miliband’s causality demands that either the banks are colluding to withhold lending from viable small businesses, or that additional competition will increase the banks’ collective risk appetites, and thus lead to more (riskier) lending.
The former would suggest that banks are conspiring not to maximise profitability – a laughable proposition – while the latter suggests that an appropriate response to the financial crisis is to inject more risk into the banking system. This is equally risible.
Third, as we saw in the last meeting of the Treasury Select Committee, selling 631 Lloyds branches to Co-op was not straightforward. Indeed, describing them as “branches” misses the point: these are businesses created by transferring customers between the old and new banks, requiring separate product lines and IT systems to deliver them, and the building of new brands.
Miliband’s solution that simply asserting the solution will make it so doesn’t bear scrutiny.
It remains important for the government to get best value for our unwanted investments in RBS and Lloyds. Unlike Royal Mail, we need to get the best possible price, and as a progressive, I want to reward everyone who underwrote the risk, rather than merely those with a spare £10,000 in their pocket.
And there is a solution that delivers both: the Portman Capital and CentreForum proposal for a broad scale share distribution that has garnered support from across the political spectrum, and has been praised by the Treasury.
Implementing such a distribution will ensure that we can all share the benefit of an improving economy, get the best price for the government, and remove government from running a key part of the economy which it regulates.
This would also mark actual progress to resolving the fallout from the financial crisis, rather than mere rhetoric against straw men.
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2 Responses to “Forget challenger banks, Ed – and hand shares in RBS and Lloyds to the British public”
swatnan
Makes sense, make RBS and Lloyds TSB State Banks in public ownership. Haeven knows how much we pumped in and the public deserves a good return for its money.
mlroy
An interesting argument until I ran a search and discovered that Mr. Fenwick is an employee or former employee of Portman Capital which I assume means that he has`a stake in the outcome of their proposal. Lack of transparency detracts from his argument and causes one to question his true motives.