Banking in the UK has been in need of reform for so many years now, even before the credit crunch of 2007 and subsequent banking crisis, that we don't need reminding that we are still paying for it today and are likely do so for many years to come. The UK Chancellor George Osborne's speech earlier this week was one of the better public appearances he has made and on the whole it has gone down well. He has often been tarnished with a "banker-loving, rich Tory boy" brush but there's no question that he used his opportunity to show that he is becoming more of a banker basher now than ever before, as the bonuses keep being paid in their millions whilst new scandals hit the institutions that are meant to be looking after our money.
How can it be that in this day and age that it takes a bank days to send a payment or debit an account following a purchase with a debit card? Whilst many people may like a slight delay in funds being debited from their account for something they bought at the week end, I for one would like to see the money leave instantly, just as I would like to see funds I transfer in credited straight away. There are signs of improvement, with some electronic payments becoming faster, however the banks ought to improve the payment processes and so a little pressure from the Chancellor on this front can only be a good thing.
This, however, is a minor issue when compared to the bigger picture. Who would worry about a delay in funds going in or out of their account if they suddenly realised there were no funds to move because their bank had gone bust? A clear and distinct threat to split up a bank if it does not play by the rules is enough to make any banker sit up, listen and heed the warning. But it is still very unclear exactly just how this might be achieved if it does indeed happen and it is certainly a big unknown as to what the consequences will be.
We have to remember that, despite the overall belief to the contrary, that it's not the investment banks that were playing with the retail banks money during the years that led up to the banking crisis but the other way round. The retail banks were giving out far more loans to individuals, home owners and businesses than the money they actually held in their vaults, so in many cases they relied on the bank's investment arm (sorry I meant "casino"!) to provide the remaining funds to loan out. A complete separation could be tantamount to starving someone of oxygen and is likely to lead to a rise in borrowing costs for all those individuals, home owners and businesses that rely so heavily on the retail arm.
Whilst the government must be careful not to meddle too much in the way banks are run, the sword of Damocles is arguably warranted to change the way they behave, so that they never repeat the errors made in the early noughties that led to the bubble bursting so spectacularly. Banks are repairing the damage slowly but surely but unfortunately for those who think the Libor scandal and this most recent speech of the Chancellor's mark the end of the "bash a banker" era, they've got another thing coming, as those cupboards still have skeletons lurking in them.
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