Why doesn’t the government just create a regional banking network?
Kaveh Pourvand, 24 April 2013
Hopes for greater competition and pluralism in the banking sector were dashed today as The Co-operative Group pulled out of a deal to buy 632 bank branches from Lloyds Banking Group, citing the worsening economic outlook and also regulatory requirements in the banking sector as reasons. The Guardian reports that the deal will be a ‘major blow’ to the government which had worked hard behind the scenes to facilitate the deal to weaken the grip on the market of the ‘big four’ banks: Lloyds, Royal Bank of Scotland, HSBC and Barclays. Lloyds have been instructed by Europe to sell the branches following their £20bn bail-out from the state.
It is good that the government is keen to see more competition in the sector. Yet, as ever, it is sitting on the side-lines instead of being proactive: why don’t ministers just go ahead and create a regional banking network using the branches of the state-owned banks? Many studies have highlighted the benefits that countries like Germany and Switzerland gain from such localised networks (for example, Civitas publications by Christopher Simpson and Stephen Clarke). Only yesterday, the new Archbishop of Canterbury Justin Welby, a former oil executive who has been sitting on the Parliamentary Commission on Banking Standards, called for the creation of a regional banking system by “recapitalising at least one of our major banks and breaking it up into regional banks”.
The government’s dithering is most likely due to their fear of being seen to intervene in the free-market. Hence, they are happy to hide in the background supporting a private bid but afraid to do anything more pro-active then that. Of course, the problem here is that the oligopolistic banking sector is the antithesis of a free market. There is the small matter of those bail-outs. But apart from that, the big merchant banks have been the biggest recipient of the £375bn of money created by the government as part of its quantitative easing programme. Whatever the sector is, it is not a free-market. It is precisely the current oligopolistic arrangement, which the government is doing little to resolve, that goes against the principles of competition. Moreover, free-marketeers are supposed to value localism. That is not a value upheld by the centralised big four-banks but definitely would be by a regional banking system. For the sake of competition and the SMEs the government are purportedly so keen to help, they should be bold and give Britain the regional banking system it needs for the 21st century.