Banks too big to fail, but not too big to change

February 15, 2010

Chris Morling, MD Morling is managing director of The opinions expressed are his own.

With Britain’s biggest banks widely tipped to report record profits this month debate over banking reform rumbles on.  But why have proposed reforms ignored the concerns of the retail banks’ disillusioned customers?

“Never again will the American taxpayer be held hostage by banks that are too big to fail.” So said Barak Obama as he challenged Wall Street to fight it out in what boils down to popularity contest.

In essence he’s right of course. Here in the UK the taxpaying public had no choice but to watch open-mouthed as the Treasury and the Bank of England used the public purse to prop up the banking industry’s crumbling edifice.  It shouldn’t happen again, but it’s happened before – and Obama’s measures seem long on fine words but short on detail.

Still, the lack of clarity on the real measures behind the populist rhetoric didn’t stop some in Whitehall’s corridors of power jumping on the bandwagon with unseemly haste.  It’s easy to see why.  There is a general election looming and, in these post-recessionary times, a spot of bank bashing undoubtedly plays to the gallery.

Sadly, however, it seems that there is far less appetite to deal with a very real issue with our banking industry, one which strikes at the very heart of our relationship with banks.  Quite simply, it seems that a huge proportion of UK adults feel that their banks cannot be trusted to treat them fairly on a day to day basis.  When you consider that having an active current account has become, to all intents and purposes, a pre-requisite to full participation in modern, western society, that is a situation that cannot be allowed to continue.

Henry Ford once said that if the man in the street ever came to fully understand how the banking system worked “there would be a revolution before tomorrow morning”.

Well, we got a very interesting insight a couple of years ago, when the Office of Fair Trading published a market study of ‘Personal current accounts in the UK’.  With the debacle over bank charges already in full swing, the report found 81 percent of the banks’ revenue from current accounts to be ‘derived opaquely’ –specifically 2.6 billion pounds per year from ‘insufficient fund charges’ and 4.1 billion from ‘net credit interest’.

Astonishingly, it turned out that these ‘opaque’ sources of income from current account business contributed more to bank revenues than savings accounts and credit cards combined.

Small wonder the banks were prepared to fight so hard against the OFT’s case and, of course, they have succeeded in halting that fledging, and albeit limited, revolution However, maybe they didn’t foresee that this dogged refusal to play nicely, combined with the fall-out from the credit crunch, threatens to damage their relationships with consumers beyond repair.

A survey by found that just 7 percent of consumers trust their bank to treat them fairly, and only 15 percent believe that moving banks would make a ‘real difference’.

With this in mind it is a great shame that, amongst all the worthy talk of bank reform, precious few voices have spoken up on behalf of everyday banking customers.  The banks are too big to fail, it’s true.  But they are also too big a part of people’s lives to be allowed to get away with the opaque practices that prevail today. I believe it is time for a new deal between banks and consumers – one built on transparency and utility rather than cloak and dagger.

There is hope, however.  Which?, with the formation of its Future of Banking Commission, is seeking reform that it hopes will restore trust between people and their banks.  At the same time, it will be very interesting to see how proposed new entrants into the retail banking market, from Virgin and Metro Bank amongst others, set their stalls out.

Santander has already taken a tentative step in the right direction with its limited-availability ‘zero’ account.  The burning question is whether these new entities will push the boundaries even further, or simply fall into the comfortable routine favoured by their established competitors.

Time will tell but maybe, just maybe, the tide is beginning to turn.


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The key ‘relationship with consumers’ is the one mediated by their bank accounts; the article confirms that few believe changing banks would make the slightest jot of difference, so what are they going to do? The days of being paid, or indeed paying, in cash are long gone, and a bank account is pretty much up there with the rest of the utilities – an unavoidable must have, at whatever the going rate happens to be.

While most rail at the perceived unfairness built into banking, I suspect the reality is most people fall into the same situation as me. ‘Free’ banking on my current account, and a modest rate of interest on savings – I can move my savings easily to higher yield homes, and so long as I’m not paying for transactions I’m happy to stay where I am. It may be morally dubious, but the banks make the bulk of their charges revenue from those least able to manage their money.

New entrants may come up with a revised business model, but if it involves the likes of me subsidising lower charges for those currently caught in the ‘sub-zero balance trap’, then I struggle to see how that will sell.

Posted by PercyPants | Report as abusive

Simple fact of the matter is that the future of “big bucks” banking lies within the sovereign wealth and government debt arena.
Lending to the average Joe consumer or indeed the corporate sector bumps you every time with an unacceptable high risk / low return ratio, so why bother?
Much more simple to let the likes of Branson and other Johnny-come-latelys take up this slack.

Posted by theydarenottellyou | Report as abusive

What matters to me, and grieves me, is the stitch-up imposed by banks by way of the low rates of interest awarded to cash ISA investors compared to high-interest fixed rate bonds. Cash ISA’s are probably longer term investments than bonds which means to me that the banks are simply grabbing what the investor is trying to deny the Chancellor. As for borrowers, money has never been so cheap for nearly half a century, the ones who perenially whinge are those to whom carrying permanent debt is their way of life.

Posted by Jimmer XXX | Report as abusive