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Miliband’s bank reforms are nothing of the sort: all talk and no radicalism

January 20, 2014

Ed Miliband’s foray onto the battleground of banking reform was carefully judged to capture the public mood of hostility towards the banking sector but he actually committed a future Labour government to very little. And was commitments he did make do not seem very well thought through.

ImageAs far as I can see, the only real action he proposed in his carefully rehearsed speech is to ask the new Competition and Markets Authority to investigate and report on a suggestion that banks should be subject to a cap on the proportion of the market they control and how this can be achieved by making the existing players sell-off branches to create ‘challenger banks’. This CMA enquiry should take just six months, he says.

That’s it. Nothing about what these banks will do, how they will be structured, owned, managed or staffed, let alone what new products they will sell and how those products will address the needs of customers in a way the present banking product set doesn’t. Nothing on how Labour will get the CMA to take on a enquiry of which the outcome is already pre-judged – surely outside its legal remit – or how it will get it to complete an enquiry in just six months when it usually take two years on such reports.

Public anger and resentment of banks
The banking sector clearly still requires further reform. It still doesn’t seem to properly acknowledge the extent of its culpability for the financial crisis that we can all see is taking us a decade to recover from. The boards of the major banks do not understand the public anger and resentment – which will take a generation to fully subside – at their excessive remuneration and obsession with paying themselves bonuses regardless of corporate performance, let alone by any reference to public benefit. Where Miliband is so disappointing is that he offers no real reform at all and what little he does offer won’t even see the light of day until 2020 at the earliest.

In particular, he said nothing about how these new banks should be owned: this is where he could have been radical.

Why no mention of mutuality? Or, even a staff owned bank, importing the John Lewis model into the financial services sector. There is simply no point in creating new banks that look like the existing banks, have the same culture, management and corporate priorities. There will also be little point by 2020 in making decisions about the size and structure of banks by reference to the number of branches they own: this is the internet age Mr Miliband. The bricks and mortar of the huge bank branch network are increasingly irrelevant.

These more radical options should be on the political agenda today, not 2020.

The unraveling of the state ownership of two of the largest banking groups is an ideal – but almost certainly lost – opportunity to inject real innovation into a more customer centric banking sector. The best we have got is an EU-enforced re-emergence of TSB, a once great name from the mutual past of the banking sector but which is destined for a conventional share flotation later this year. Of course, using the state ownership to initiate reform of the banking sector would mean Labour having to face up to some of its own mistakes, not least the panic-stricken enforced merger of HBOS with Lloyds.

We are better off with mutuals than without them
Mutuality and other forms of mass ownership may not have an unblemished past but what I do know is that the financial services sector didn’t so routinely feather its own nest at the expense of its customers when there was a strong mutual sector among banks and insurance companies. I do not think it is any coincidence that the huge mis-selling scandals of the last two decades followed the rush to demutualise promoted by the Tories in the late 1980s and 1990s.

Mr Miliband said much but proposed very little.

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