Break Up The Banks, Says Cable
The business secretary Vince Cable has signalled that he remains in favour of breaking up British banks, despite likely recommendations from an independent commission to the contrary.
He said Britain remained "a large offshore banking centre with a medium sized country attached to it". He accepted the final report of the Independent Banking Commission, due in September, would probably stop short of calling for full separation, and would most likely recommend a form of ring-fencing instead to protect the retail operations in the event of another crisis. However he said, "my own instincts lie with full separation".
Cable was speaking at a meeting in London of bankers and regulators, organised by the consumer group, Which?. He told the meeting there had been a "disengagement of senior management" in the big five banks, resulting in a "weakness in relationship management between banks and SMEs."
"Most of the banks became very detached from local banking," he said. "Some banks are bringing that back and that's the cultural change that is badly needed."
He also said there were serious issues in terms of a lack of competition between the banks. "People change bank accounts less often than they change spouses. And I don't think that's to do with love," he said. "Competition is the best antidote to the rip-off culture that's endemic within the banks. "
The Business Secretary favours a system of "portable account numbers", a proposal which would see customers keeping their account number when they switch banks, allowing direct debits and standing orders to continue uninterrupted after the switch.
Paul Chisnall from the British Bankers Association rejected the idea of a portable account number for consumers, claiming it was too expensive. He also disagreed with Mr. Cable on whether the banks should be broken up. He told the meeting, "If it's essential to break up the banks then how come it's only in the UK that we are having this discussion?"
The chair of Hermes Focus asset management, David Pitt Watson, told the meeting that he agreed there needed to be further action, claiming that 80 per cent of people within the banking industry thought there was still a risk of another major financial crisis. However he warned against greater competition for its own sake. He said the energy and pensions industries now had "thousands of products" but were often impossible for consumers to understand.
The Chief Executive of Which?, Peter Vicary-Smith, told the meeting he favoured attempting a ring-fence model first, and only consider breaking up the banks if the ring-fence model didn't work. He said the success of a ring-fence model would be judged on whether it led to an effective and stable system.
He said, "Unless the ICB is brave in its recommendations, and the government brave in its responses, we will all have missed a unique opportunity."