After 18 month UK review, Banking industry reform proposals change nothing

Banks should be made to change, not customers by New Economics Foundation

The Competition and Markets Authority has this morning set out its provisional proposals to reform the UK banking sector so that it works better for individuals and small businesses.

The 18-month review was set up in response to concerns that customers have been getting a bad deal – and a lack of clear information has seen nearly 60% of them stick with the same bank for over 10 years when better deals may be available elsewhere.

But with the market dominated by a small number of giant banks who all behave in similar ways, and with trust at rock bottom following wave after wave of scandals, it’s hardly surprising that customers don’t feel motivated to switch.

And the CMA’s weak proposals will do little to change that.

They’re calling for customers to receive more information about their accounts and alerts when they’re nearly overdrawn, as well as more regular updates that switching is an option and a price comparison website to help them decide.

These are welcome steps, albeit basic ones that should already be in place. But there’s no sign of the structural reform we really need.

To create a banking system that genuinely works for individuals and small businesses we need to break up the largest banks and promote new types of bank that put customers’ interests first.

Mutual and public savings banks are common in other countries, like Germany, Switzerland and Japan. Free from the imperative to maximise profit for shareholders, they have been shown to offer customers better rates and better service than big commercial banks. They also lend more to individuals and businesses rather than engaging in risky, speculative activity.

A system dominated by similar banks also poses risks for our financial stability and resilience, with a more diverse banking sector more protected against external shocks.

Here in the UK, the taxpayer-owned RBS also provides the perfect place to start. We could boost the national economy and provide a truly value-for-money banking service by breaking it up into 130 locally-run branches.

But instead, the CMA continues to put the onus on consumers to secure a better deal in a market that is stacked against them: “Having more and smaller banks, which customers still couldn’t easily choose between because of lack of transparency on fees and charges, would not significantly improve the market or give customers a better deal.”

The CMA’s final proposals will be published later this summer. But until they realise that simply giving people more information about the same old banks won’t change anything, they’re likely to be a missed opportunity.

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