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Banks can learn from retailers

Robert Peston | 09:53 UK time, Wednesday, 16 September 2009

It's been a tough recession for retailers, although the better ones are emerging from it stronger relative to their peers than before the deluge.

That's obviously true of the big supermarket groups. But it's probably also true of Next and M&S, which are bouncing back faster than might have been expected.

Next, which this morning announced figures for the first six months of its year, generated a 7.6% increase in operating profit from its eponymous brand, on the back of flat sales (well a rise of 0.9%).

Branch of Next

Pre-tax profit for the group as a whole rose 6.9% to £186m and the dividend was pushed up 5.6%.

Not a bad performance at a time when - for a couple of months at least - the British economy was contracting at an annualised rate in the region of 10%.

Most of our big banks would be sick with envy.

And perhaps they could do worse than to learn from the relative success of our better store groups - and especially in the way that a Marks & Spencer or a Tesco cherishes the relationship with individual customers.

Which is a conclusion that can be drawn from two insightful contributions to the debate about how to fix our banking systems: a speech called Credit is Trust by Andy Haldane of the Bank of England (him again); and a paper entitled Narrow Banking by John Kay (published by the Centre for the Study of Financial Innovation).

Both provide compelling arguments why the proliferation of the giant universal bank - banks like Royal Bank of Scotland, Barclays, Citigroup, Bank of America, UBS, BNP Paribas and so on - have been bad for shareholders and appalling for the global economy.

In different ways, they arrive at a similar conclusion: that a healthier banking industry would have a greater variety of banking institution; and there should be many more specialist or narrow banks, concentrating either on retails services for individuals and small businesses or on the more sophisticated products (the casino services) apparently still desired by big companies, investment institutions and governments.

By the way, if you agree with Haldane and Kay, you will note with some alarm that this kind of industrial reconstruction is nowhere near the agenda of the G20 leaders of the world's biggest economies for their forthcoming meeting (perhaps because, as Prof Stiglitz sniped in an interview with me a few days ago, banks have disproportionate lobbying clout, especially over Congress).

Probably the biggest problem with the universal banking model is that it accentuates the propensity of all banks to conduct themselves as manufacturers, rather than retailers.

Of course, they talk the talk of providing customer service.

But the profit is not in the long term relationship with clients whom they barely know.

The profit is in the opaque fee and interest-rate structure of the credit card, or the mortgage, or the business loan, or the credit default swap, or the collateralised debt obligation.

And this manufacturing mentality has been worsened by technological and market innovations.

The final nails in the coffin of Captain Mainwaring - the apocryphal grumpy bank manager who knew everyone in his local community - were automatic computerised credit scoring and securitisation: why should a bank bother to know any customer when it could lend to him, her or it on the basis of generic data and could flog the loan (packaged up with loads of others) to another bank or an investor as an asset backed security or a collateralised debt obligation?

Of course, what's both hilarious and tragic about the evolution of universal banks into pump-and-dump cowboys is that too many of them believed their own sales patter, and kept too much of the crappy securitised loans as stock in their own warehouses, as assets on their own balance sheets.

What's to be done?

Well, a good starting point would be to remind ourselves why taxpayers in Europe and the US have bailed out the banks to the tune of $15trn, or more than $2,000 for every person on the planet.

It's because there is a utility element of banking that we can't do without - which resides in the transmission of money, in providing basic credit to individuals and businesses, and in providing a safe haven for savings.

I am not claiming that defining the scope of the public-service utility is the easiest job in the world. But nor is it impossible.

And the important point - which most banks seem to have missed - is that in effect the public-service utility bit of what banks do has been nationalised almost everywhere: finance ministries and central banks provided unprecedented loans and guarantees to the banking system in order to preserve the integrity of the crucial financial infrastructure.

What many would conclude is that this public-service utility, which can never be allowed to fail, should therefore be totally separated from all other aspects of what banks do (all the other stuff, from proprietary trading in securities, to manufacturing derivatives, to flogging insurance, to investment management and so on).

The likes of Barclays or Royal Bank would not have to sell off or demerge their retail banks, although they might choose to do so. But their essential-service operations would have to be put into legally separate subsidiaries, where there would be no possibility of financial taint from their other activities.

Were this to happen, the ramifications would be big - and in the short term, pretty disruptive.

It would mean that institutional lenders to banks would no longer benefit from an implicit guarantee from taxpayers. So those lenders would demand that banks pay them a much higher interest rate, as compensation for the increased risk. And that could lead to significant shrinkage in banks' commercial banking and investment banking activities (no bad thing, some would say).

Something like this may occur, on one interpretation of what the Treasury plans in forcing banks to write "living wills" (or reconstruct themselves so that - in a crisis - retail depositors' money could easily be hived off from the rest of a bank).

But the general thrust of negotiations at an international level between central bankers, regulators and finance ministers is not in this direction, but is much more about salvaging the discredited Basel Rules on capital adequacy.

Those rules are arguably part of the problem, not of the solution.

Built into the design of the Basel Rules (hardwired in, to use the cliche) is an incentive to banks to game the system to maximise short term profits, and a disincentive to form relationships with individual customers.

In a diversified world of narrower banks, rather than our homogeneous world of universal banks, it would be possible to re-instate much simpler rules on how much capital and liquidity banks need to hold.

Here's the paradox: for all the evidence that supervision and regulation of banks was both inadequate and too "light touch" over the past few years, the fundamental regulatory structure could be simplified if banks were broken up into their utility and non-utility parts. And a proper competitive market, where there was parity of power and knowledge between banker and customer, might even in time emerge (or is that a hope too far?).

Comments

Page 1 of 2

  • Comment number 1.

    ....but this is basically Glass-Steagall again - which most of us have been calling for for ages. You've just said it a lot more words!

    "banks have disproportionate lobbying clout, especially over Congress." Ha, ha, ha -shurely not..?

  • Comment number 2.

    Come on Robert, do you really think this is the biggest economic story of today, how about cuts or unemployment figures or IDS welfare proposals or even share price optimism.

    Dispite the tenuous link of Next's results to banking, there is nothing on your report which your bloggers have not been discussing for weeks / months

    If i have to comment i couldn't really care if bankers used credit rating scores or a captain mainwaring approach as long as they can find a way of lending to SME's on fair terms

  • Comment number 3.

    Robert,

    Have you considered that the rise in retail sales in this recession by certain retailers might have something to do with:

    a) Some people just don't learn and are continuing to spend credit without realising the impending rate rises around the corner.
    b) The 175 Billion pumped into the Economy.
    c) The reduction in the VAT rate (which will be over soon)
    d) Smaller retailers are being hit hardest, not big one's like Next - which results in less choice for the consumer on the high street.

    I think you've spent too long hanging around the press offices of some retailers when you make comments like:

    "and especially in the way that a Marks & Spencer or a Tesco cherishes the relationship with individual customers."

    Relationship? with individual customers? I don't go to the supermarket to make a relationship, I go to buy essentials like food, clothing, household goods etc.
    If I want a relationship I will go speed dating.

    Anyone who does go to their supermarket for a relationship is a very sad person indeed. This is simply supermarket marketing fools getting excited about nonsense - possibly brought on by too much lunchtime drinking.

  • Comment number 4.

    An excellent idea

  • Comment number 5.

    With regard to the second part - the reform of banks and specifically the 'living will'
    The geezer at Standard charter said that a living will would be 'too complicated to draw up' and therefore costly to administer. He also made the point that it would be easier for retail banks but nigh impossible for some of the complicated investment banks.

    ...so I conclude that it's too complicated to write down how you would deal with a collapse - so why bother - it's better to 'run the risk' that you won't collapse and worry about it if it happens.

    Once again the banking world showing their complete lack of understanding for risk. No wonder it's taken more than a year to wind up Lehmans. I wonder how many businesses and households will fail whilst the 'complicated knot' is untied by the adminstrators.

    To clarify the argument about regulation.

    The banking system demonstrated it could not discipline itself (and not for the first time).
    The answer proposed is to increase regulation, however the banks say this will impact them in 'doing business' - or as I like to call it - 'ripping off the public'.

    ...so where does that leave us? Force them to accept regulations - or give them YET ANOTHER chance?

    I don't know if anyone else has bothered to notice but a lot has been made of this recession being caused by a 'banking crisis'. However apart from one (1970's) all recessions are caused from banking, in this country usually through the housing market.

    So why are the media claiming this is one is somehow different?

    Why are you trying to fool the public?

    Who do you really work for?

  • Comment number 6.

    But Robert...such a bank exists today!

    ...it's called the Co-Operative Bank

    I recently opened a new account with them online. It only took about 5 minutes.

  • Comment number 7.

    Wishful thinking - certainly given the idealogical barriers of even the current Labour Government. What is practical is to retain a substantial part of the banking industry in some form of public ownership accompanied with a 'royal charter' and supervised by a non operational board representing government, consumers and employees. This could be fashioned into a model bank that would force the pace in terms of real competition. (It is the lack of effective competition that enables the banks to generate enormous profits that fund the outrageous bonus culture). The overall point that surfaces occasionally is that this sector is given undue prominance in government and social policy and it dictates the development of the economy well beyond the essential utility role.

  • Comment number 8.

    This article makes a mockery of 'get big or get niche'...they've got big (didn't work) so now try to 'get niche'. Not sure i'm convinced.

    The problem is regulating to make sure that risk is clear.

    Forcing banks into smaller, specialised units is all well and good for achieving this purpose, and as you rightly say the interest rates for lending to riskier 'units' would be higher..but who decides the degree of the risk and/or what the risk factors are? Moodys etc?? Not exactly the best track record.

    Rather than trying to work the unworkable as is, why can't there just be a lending;capital ratio level set across the industry. This would automatically limit the damage of riskier lending if it went wrong and would incentivise the banks to be more cautious in their lending criteria.

    Whilst this would lead to a retraction of lending, isn't the point that there was too much cheap (unsustainable) credit available previously which resulted in lower lending (sub prime) which caused a bubble (which has part burst)?

    Given that the industry is so powerful I can't see them ever remotely agreeing to this type of intervention. And there is one final problem with the 'get niche' thought, if it were to work it would need to be global- otherwise the larger banks (as are) would relocate to any jurisdiction not party to the regulation and would continue to offer a myriad of financial products offering the earth with purportedly low risk, which are impossible to assess adequately (as is the case now). There is no prospect of such a global response and therefore this remains an academic thought.

    Incidentally M&S, Tesco and the rest are all moving into finance and have been for some time. Whether they will seek to approach customers in a personal fashion seems unlikely. You'll note that neither have actual branches for their respective financial operations, or even retail floor space dedicated to their financial products. Therefore seems unlikely that they intend to follow a different path from existing banks.

    It will be interesting to see whether these traditional retailers retain a retail based finance offering or whether in a few years (months?) we start to see a 'Tesco Capital' develop moving into the 'manufacturing' finance arena you describe- a prospect which frankly I find terrifying.

  • Comment number 9.

    Retailers have a totally different mindset from banks. If a retailer sees his competitor raising prices, he says : "great - now I can undercut him". But when a bank sees his competitor raising prices, he says : "great - now I can justify my price increase by saying I must keep in line with my competitor".
    The banks are a taxpayer subsidised cartel, who are currently "repairing their balance sheets" (profiteering) by withdrawing existing credit and penalising those who can't comply when they remove overdrafts at the drop of a hat, charging extortionate arrangement fees and over-the-top rates of punitive interest way over base rate when they do deign to lend, instructing their surveyors to deliberately undervalue property to be used as security with a view to justifying more rip-offs and generally starving individuals and businesses of desperately need credit. And in the meantime, they're sitting on cash made available by bail-outs and QE, with nothing else on their mind other than paying off the bail-outs as soon as they can so that they can resume their "independence" (ability to award themselves bonuses).
    By necessity, retailers are run by businessmen who must survive in a competitive environment whereas banks are run by people totally divorced from these kinds of pressures. Even at local level, most businessmen will be familiar with the galling experience of being told how to run their business by a bank "small business advisor" who couldn't organise a proverbial p***-up in a brewery. And it seems that despite all the hot air coming from the FSA, the Bank of England and Mr Darling about the current arrogant attitude of the banks, they're powerless to force them to change. Caledonian Comment

  • Comment number 10.

    It seems to me Robert that all you're saying is that those taking the 'risks' should shoulder the burden of loss: pretty sensible to me, but you try to convince our hopeless political elite that this is what needs to be done. Anyway just wait till winter arrives it'll be then that we'll see some of these big retailers squeal, yeah, and the banks'll just carry-on in their merry old way as before.

  • Comment number 11.

    The idea that the retail and casino parts of banks should be legally separate entities, in which the losses from one cannot impact on the other is clearly very sensible. I'm sure the banks will manage to successfully lobby against it. After all, there will be a lot of MPs needing to find well-payed new employment in directorships and consultancy roles following the general election.

  • Comment number 12.

    Robert, you may be right re banks needing to learn from retailers just as long as it is the right retailer!

    Andy Hornby was a success at Asda runing George but an unmitigated disaster at HBOS.

    The basic problem with blindly relying on automated systems is that it assumes that the data model is correct. If AIG, Lehman Brothers and Long Term Credit Management amongst others have taught us anything is that blind faith in computer models is very risk indeed.

    Captain Mainwairing would have realised from his local knowledge from walking down the High Street or at the golf course that a local business was in trouble. "Computer says no!" with a Phd in mathematics in an office thousands of miles away is unlikely to do so.

  • Comment number 13.

    No!

    They don't want to learn off anyone - they're quite happy doing what they are doing!

    But, 'they' could certainly learn a lot from the Archbishop of Canterbury!

    Remember, before we had banks in England - the Church was very often the banker! (and before anyone writes and points out that this was not entirely trouble free - Yes - I know!)

    My proposal would be to put all of the banks under the control of the Church of England and make sure that all of our Churches are repaired before any banker gets any bonus!

    May sound a bit daft, doesn't it? - I'll give you something even dafter - letting an 'impertinent plume-plucked flirt-gill' like Brown keep messing up our economy and banking systems.

  • Comment number 14.

    Robert, I love your Blogs, and thanks for the education and information. On this Blog you are saying what I have been saying for months now. Please stand agree to become Chancellor in whatever colour government we have next. I personally will start a petition to have you made a Lord, and then another to have you made Chancellor!!!! Please somebody listen to Robert, and follow his recommendations!

    Sicophantically yours!

  • Comment number 15.

    Banks have forgotten a long time ago who their customers actually are and what they want. They look on their retail operations (i.e. day to day branch activity and the automated payments) as a low profit operation. This view is only true because they were making more profit gambling the takings from these customers. Small business customers are especially hard hit because the banks treat them as cash cows.

    Banks don't value customers as they know most will remain with them because of the perceived difficulty in changing banks. Up until very recently they haven't tried to compete on prices or products (unlike shops). They need to focus on what their customers want (faster payment clearing etc) rather than what the banks want (more sophisticated and complex fee charging systems). Then maybe they will be in a position to entice customers to switch to them and actually start competing likes retailers do.

  • Comment number 16.

    That large retail banks in reality treat their personal customers with contempt is evidenced by the single UK-wide call centre phone number each gives out to its customers. They erect insurmountable obstacles to customers actually being able to speak to the person they want to. Customer care in this respect is just aweful.
    When my daughter arranged with a bank to take out a loan to part finance her post-graduate studies, as a parting shot the bank official gave her his business card, and said 'just ring me if any problems'. Needless to say the phone no. on the card was the single UK-wide number - completely useless!

  • Comment number 17.

    Spot on.

    This is a really important blog, Robert, which deserves as wide an audience as possible.

    I will be attempting to start a viral email linking to this which at some stage will hopefully get to Darling, King, Turner, and Brown.

    Question, though, for you....

    Is there no way we in the UK could unilaterally adopt this system, even if the rest of the world does not sign up to it? It might after all, in such circumstances, give us a huge competitive advantage in absolutely all economic activity except whatever 'financial services' used to mean. It would also very likely help a huge number of talented people to find much more satisfying and fulfilling jobs in the real economy (I'm referring to bankers of course).

  • Comment number 18.

    The difference between retailers and banks though is that they are prevented by competition rules from selling goods below cost and they know from the moment of sale what they are going to receive in sales revenue versus what the item cost them. In fact they often receive payment for the goods long before they have to pay their suppliers!

    Retail banking is totally different. It is very clear that banks have been selling mortgage below their real cost, particularly to sub-prime customers. They have also been charging customers who go overdrawn too much and subsidising those who don't (a complete opposite from Tesco where customers pay a premium for quality rather than get a cheaper low cost range at the bottom end).

    In commercial banking, companies seem to be paying over the odds for financing, commodity prices are inflated and losses have been nationised to be borne by the tax payer.

    I like your idea though Robert... if each division and product of a bank had to demonstrably cover its costs it would prevent big banks from pricing out their competition and would give much more transparency to the excess profits and charges being made in some areas.

    We are all going to have to deal with the fact that money is likely to be more expensive in the short term though and that the value of property will continue to fall until such time as the imbalance created by securitisation and state intervention in markets is removed.

  • Comment number 19.

    Robert Peston:

    That is true, Banks maybe can learned a lesson from retailers....

    =D=

  • Comment number 20.

    "Well, a good starting point would be to remind ourselves why taxpayers in Europe and the US have bailed out the banks to the tune of $15bn, or more than $2,000 for every person on the planet."

    Is that the right figures? There are 6bn ish people on the planet, so doesn't that make it $2.50 each? Or is the $15bn figure a British billion (i.e. a million million), rather than a US billion (a thousand million)?

    Obviously this doesn't dilute the main point of the argument, with which I couldn't agree more, I'm just a pedant about numbers.

  • Comment number 21.

    Robert, you've got it in one. A masterly analysis of the problem and shrewd bankers hsould welcome your solution with open arms. Amongst other things, they would then be free to pay themselves big buck bonuses in their high risk arms before they go spectacularly bust

  • Comment number 22.

    An idea for another blog entry by Robert Peston:
    It seems so obvious that the casino and utility activities of banks should be separated, so why doesn't it happen? Pundits say that it will never happen without America doing it, and that America will not do it because Wall Street does not want it.
    Does Robert Peston agree with this line of reasoning? If so why does Wall Street have such world-dominating power? We know that the American polical system is corrupted by campain contributions and lobbyists, but why would a congressman or senator from California or Wyoming care what Wall Street thinks?

  • Comment number 23.

    And as we return to 'narrow banking', let's return to charging for the privilege of having an account, a charge for each transaction we make etc. You know, like we did in the 'good ole days'.
    By being part of a group, retail customers benefit in small ways like this.
    And let's not forget the 'rate tarts' when mortgage deals were prolific - I don't seem to remember the complaints about short-term relationships with institutions then. Or the fact that there was a cheap mortgage available.
    But hey, blaming banks for everything is so much easier, and makes better headlines, than something along the lines of 'You have to accept responsibility for your own taking of credit'. For remember, the reason that the CDOs etc went bad was that people stopped paying back their loans!

  • Comment number 24.

    The obvious way forward for the financial world, although it would be resisted by those on the management boards of every bank because it would reduce their ability to milk the system, would be to revert to the post WWII idea of banking.
    Merchant banks dealt with Trade and Industry (lending money for business ventures such as take overs and trade finance), retail banks dealt with consumer and small business banking and private banks dealt with HNWI, asset management and wealth management.
    Mortgages came from Building Societies and both building societies and retail banks held savings accounts.
    Equities and Bonds were traded by stock brokers.
    Shimples…

  • Comment number 25.

    Robert
    As a career-long banker (starting a good number of years before the Basel rules first saw the light of day!), I have to acknowledge that it is hard to defend much of what recent events have revealed about the banking sector as a whole.
    However, as I have observed before in these pages, I think you (and a good number of others) are missing a very important reason as to why Basel I was first introduced, and then Basel II followed that.
    Namely that, without some set of clearly-stated rules, neither the bankers nor the regulators would have any basic mechanism to measure and judge the adequacy of any particular bank's capital levels, versus the risks being carried on the back of that capital.
    Harking back to the greater simplicity of Basel I ignores the important fact that it encouraged a raising of the average risk profile in any bank's Balance Sheet, as there was no differentiation of the capital requirement for most of the loan portfolio.
    The capital required to support the highest-quality corporate (or individual) loan was just the same as for the highest-risk loans.
    So, realistically the only way to increase ROC (return on capital) was to do more risky loans, as they pay a higher margin.
    In other words, it was pushing the banks towards a 'race to the bottom', in terms of average risk profile.
    So, Basel I (or some other 'attractive' simple adequacy concept) is not the panacea that you and others seem to think that it is.
    The world is not simple, and bank loan portfolios are not homogeneous, nor are the various portfolios anything like Xerox copies of one another.
    Additionally, the sheer number of loans in the global portfolios is so vast, that closer hands-on review and inspection by regulators is not an option either.
    So, what do we do about this situation?
    Perhaps the solution is a sort of Basel 1.5, which retains some of the 'risk differentiation' concept, but does not get bogged down in the huge complexity of Basel II - and also which doesn't allow individual banks to judge their own situation using their own bespoke VaR models.
    I would like to see you promoting this type of solution, as against the wistful musing after the long-gone (and not returning) 'Mainwaring' days.

    The best answer probably is a

    There probably is




  • Comment number 26.

    I see Rob Peston has come round to Vince Cable's point of view about separating casino from retail. To the conspiracists:

    Does this show:

    1. Peston is following the zeitgeist, 'The Sun' style & positioning himself for the next government (Lib Dem?!)

    or

    2. Peston is trailing a proposed policy U-Turn by Labour government to see if it will fly?

    or

    3. Explaining his truly held opinion.

    For what it's worth, I think 3.

  • Comment number 27.

    Moderators clearly working hard today probably due everyone hyperlinking this:

    http://news.bbc.co.uk/1/hi/business/8258405.stm

    2.47 Million eh? Wow; imagine what the real figure must be!

    Of course an increase in select retail establishments is no real help to those looking for jobs at the moment. You see, retail store managers do not want too many educated, self-confident folk coming in, it risks making them look bad. No, Christmas temps will be filled with 16-18 year olds not knowing what the hell they're doing and how little they are being paid.

    Of course, much in the same way that advertising the same job 20 times, christmas will seem to show a huge increase in job vacancies.

    How about banning agencies from advertising job vacancies that never or no longer exist? Stop them from advertising the same job in twenty different ways? Get rid of a sector that earns money by selling other peoples labour?

    It would be nice to have some truth in employment versus vacancies. I suspect Next and M&S are being supported by people buying suits for job interviews, paid for by the tax payer. People need clothes, they need food. The retail sectors that provide wants are the one's that are really struggling. DSG for example.

  • Comment number 28.

    Utility and non utility banks?

    Sounds like life before the 1986 "Big bang". I never fully got my head around Basel 2 but it sounds like the blind leading the blind if it was the bankers defining the security required by the banks.

    Lunatics and the assylum!!!

    With Mr Brown crowing about his "light touch" regulation is not time that they (government) put their hands up and admit that the bankers managed to fool them as well as themselves.

    Whatever happened to M3 money and money supply which appeared to be so important in the 1980's.

    A lot of the posters on here; myself included would like to see a return to branch (utility) banking and Merchant/Investment banking.

  • Comment number 29.

    Robert,
    your blog hit the nail on the head. Comments 2 and 3 are relevant, however.

    What about pursuing the lack of separation of Auditors and Management Consultants, and how that may have affected Auditors' ability to draw sufficient attention to the risks being run?

    It might also be time to regulate on the number of subsidiaries any holding group can have, in order to make the audit easier.

    Waht about setting maximum remuneration for companies over a certian size, limiting the max pay to a sliding scale of a multiple of the average nad lowest pay?

  • Comment number 30.

    While Robert is off with the fairies, here's some real business news.

    http://news.bbc.co.uk/1/hi/business/8258643.stm

    This story on car manufacturers begging for the 'cash for clunkers' scheme to be extended should tell you:

    a) The new car market is dead and will only continue through public subsidy.

    b) Labour's talk of 'green economy' is complete nonsense, they may talk about it but to have a scheme which actually SUBSIDIZES WASTAGE shows their true colours.

    Labour are no different to any other mainstream party - they will tell you what they think you want to hear in order to secure the next election. They don't care about the environment, unemployment, public services - nothing that matters to you and me.

    This is what politics has come down to - spin your way into Government and then do whatever you like when you get there.

    Is this the way to run the country? A system based on lies and trickery?

    Our Economic system is based on trust - so why is politics jeapordising the running of the Economy by destroying that valuable trust?

    Shame on them all - you thought Hitler was the greatest threat to this nation - well the greatest threat are the politicans that run it and not any external tyrant.

  • Comment number 31.

    Banks learning from retailers. Do I recall a certain HBOS trying to do that with Mr Hornby?

    An interesting proposition...

  • Comment number 32.

    Peston is advocating a new (and stricter) Glass-Steagall act. But the problem is greed: even the utility-banks would want to make high returns by investing in the products that the casino banks develop, putting them at risk.

    One has to go a step further and nationalise all utility-banks, or at least offer nationalised competition. Many would consider these anti-competitive because of their government backing (like German Landesbanken), but at least the benefits of this guarantee would go to the consumers and businesses in form of lower rates, rather than to the bankers as bonuses (as they do with privately owned banks that, as we now know, were also backed by the taxpayer).

  • Comment number 33.

    We need to go much further, we have seen too many excesses, whether it was the dot-com boom (remember that was also fuelled by bankers), Enron and WorldCom scandals, and now the mortgage crisis.

    The underlying problem is the limited liability enjoyed by shareholders in LImited Liability Companies and in Corporations. We all seem to believe that that it is natural that equity holders are only liable with their capital, but that is not the case. This idea of limited liability is purely a legal construct that can easily be abolished.

    The limited liability enjoyed by shareholders leads to excessive risk-taking, because the downside is limited to the capital but the upside is unlimited. It is therefore in any shareholder's best interest to run a business as risky as possible.

    If the downside were also unlimited, ie shareholders were liable with their full personal wealth, we would have much more responsible companies as their owners (shareholders) would care that no excessive risks are taken, that the environment is not unduly polluted, and that the company's staff are well treated.

  • Comment number 34.

    following on from writingsonthewall's #3 point 70,000 high street retail shops are anticipated to close this year. I wonder how many of these retailers feel lack of support from bankers was the final nail in the coffin

  • Comment number 35.

    #5. writingsonthewall wrote:

    "The answer proposed is to increase regulation, however the banks say this will impact them in 'doing business' - or as I like to call it - 'ripping off the public'."

    My bank is certainly not ripping me off. They're charging me 1.75% on my mortgage, paying me 2.8% on my savings (almost 6% on my ISA!) ad don't charge at all for using my debit card overseas. I get excellent service and value for money.

    If anyone feels that their bank is ripping them off then it is up to them to take their business elsewhere.

  • Comment number 36.

    6. At 10:47am on 16 Sep 2009, BankSlickerminustheR wrote:

    "But Robert...such a bank exists today!
    ...it's called the Co-Operative Bank
    I recently opened a new account with them online. It only took about 5 minutes."

    Me too - however unfortunately I failed their credit scoring system! The reason is another bank mistakenly black-marked me and hasn't removed it yet.
    With a current account which has not had less than 15k in it any day this year you can see the idiocy of the credit scoring system.

    I'm not concerned because I will resolve it - but it costs me time and money to rectify it through Experian. The bank who made the mistake has already been told by the FOS to rectify it - and still it's not been done - 1 year later!

    The system is a complete joke - the 'computer says no' culture is something I complained about nearly 8 years ago with HSBC when the local branch manager was replaced by an 'area manager' who managed 5 branches at once and he said himself that this was 'not an improvement in service for the customer'.

    At least with retail I can take my business elsewehere, or alternatively stop buying clothes and make them myself - neither option is really available with the banks as they clearly lack any true competition between them.

    The only competition they have is to see who can rake the customer clean first.

  • Comment number 37.

    Poor analogy Robert on two counts: (1) M&S and Tesco are not exactly known for 'cherishing' individual customers. They squeeze every last bit of margin out of customers and suppliers (also customers) for themselves and shareholders; and (2) didn't HBoS' model, under its last CEO, take all he had learned at ASDA and apply it to that retail bank?

  • Comment number 38.

    If we had the same degree of lending to the second people it would not matter whether that banks were big or small or whether they were specialized or not. All it would have happened was that we would have had many more small bank failures to deal with. We can not allow them to fail as a group.

    To the extent that small banks do not lend out as much money or to the same lenders the crisis would have reduced.

    The basic problem occurs because certain elements in the economy reinforce each other. A small change in one element produces a similar change and all the other related elements. A rise in unemployment causes a decrease in house prices, and a reduction in consumer spending and... Falling house prices cause consumers to spend less and borrow less. This in turn causes a rise in unemployment and a further reduction in consumer spending. The spiral continues.

    If we had more banks, there would have been more banks to fail, if we assume the same degree of leverage.

    If we reduce the degree of borrowing by reducing the amount of leverage we will have a more stable economy, but we may have less growth over the longer term.

    While the reduction in the amount of leverage in the system may be desirable from some points of view there are other actions we should take to increase the effectiveness of this action. Social programs such as unemployment insurance act in the direction opposite to what is happening in the general economy. If economic activity rises the amount paid out in unemployment insurance falls. If economic activity falls the amount paid out in unemployment insurance rises. So programs like this actually act as stabilizers in the economy.

    Similarly monetary policy and interest rate policies can be tuned to do the same thing. The problem is that this was not done, or not done to a significant enough extent.

    The problem goes much deeper than banks forming a relationship with customers who are creating a whole lot of specialized retail banks.

  • Comment number 39.

    So many points in the article and so little time to comment.

    Basel II rules are part of the problem: I agree. The rules are based upon the banks own mark to market risk models which (a) assumes banks understand the risks which I think we have no proved to be a wrong assumption (b) does not work when the market collapses.

    Bank regulation is not sufficiently open. If bank regulators published every year a simple risk weighting for each bank and the required capital base to support their business this would change bank behavior considerably as it would effect their share price.

    Bank service is, in general, dreadful. There are exceptions, I bank with Smile and have always had good service, I moved from HSBC when they tried to "upgrade" my account terms which meant I was paying for something that I was getting previously for free but was getting the benefit of extras (travel insurance and things like that) that I did not want - they did offer me the option of their "basic" account which only reduced the interest they paid me on deposits by 60%.

    I doubt there is big scope for niche banks for the simple reason that people now have vivid memories of banks going bust. A small bank only has a small capital base and therefore easier to go bust. Small banks will cost more.

  • Comment number 40.

    We can learn something from Margaret Thatcher.

    I recall sitting in the dark and shivering in the 1970's due to industrial action causing power cuts and Maggie smashed the unions because they had too much power and had held the country to ransom for 25 years.

    Maggie had to make difficult decisions which on any outcome would cause great pain - and her decisions certainly did - but Maggie had the courage to make decisions and I think got the big decisions right, as PM, particularly in the early years.

    Today the banks have too much power and need smashing up - until we have a leader with the courage and know how to do this our nation and its economy will continue to drift.

    If you think things are bad now - we've seen nothing yet if the right things don't get done and quickly!

  • Comment number 41.

    Robert,

    This is brilliant. The way you frame the argument seems to point to a good parallel: the regulated utilities in the UK. That would mean, as you say, that banks need not be broken up, but their different arms would have to be separated. I can see the banks (in fact I think I already saw Barclays as reported as doing this a couple of days ago) throwing their arms up in the air and complaining about having to unpick complex ownership structures. But that should not be the case, all universal banks already have their retail and wholesale operations organised separately.

    So, back to the utilities, replicate the utility structures, insist on banking licences being dependent on a ring-fencing of the essential, utility-like, retail operations. The rest of banks' operations would continue to be regulated of course but the ring-fencing would both allow banks not to be broken up and protect consumers, a modified version of Glass-Steagall. At least, I think that's where your article is heading...

  • Comment number 42.

    So what you are suggesting is that profitable banks like Barclays and HSBC should become more like those focused on lending to retail customers like Northern Rock and HBOS? Obviously not…

    For me, although the mantra of 'no bank should be too big to fail' is a sensible one, it misses the point. Splitting the banks would not have prevented the crunch.

    The problems of the UK banks are that they lent too much; to the public, to companies, to the government and to asset managers / hedge funds (and the government through their regulators let this happen).

    The crunch we are experiencing is a rebalancing of that as we all reduce our debt back to sensible levels.

    All the talk in the press and by politicians of splitting banks, bonuses, complex derivatives, casino banking etc is just playing to the galleries and chooses to ignore the fundamental cause of all this - we borrowed too much.

  • Comment number 43.

    The problem is related to leverage, and the link between asset prices and the general economy. Reducing the amount of leverage with a reduced economic growth, but may make the economy more stable.

    Whether we have a few large bank failures or many small bank failures is a second-order effect, unless small banks are less leveraged.

    As we have discovered, transferring risk from one player to another does not eliminate the risk and when the risk as a result of events that all move in the same direction at the same time the results can be catastrophic.

  • Comment number 44.

    Unjustified optimism. Everyone realizes that the status quo has won again. Nothing is going to change. The banks own the governments and could care less about depositors. They already stole and misappropriated their money, had the government backfill unethical loans and investments, rewarded themselves with bonuses and had the very people they stole from fund their misadventures with tax dollars. What could they possibly learn from retailers. The average citizen was looking for some change in the way governments protect their interest but found that is not going to happen. Everyone is just getting on with their lives with the bleak reality that the ideals of represenative government has been lost to special interest and corrupt politicians. Only politicians and bankers are upbeat, maybe you should try talking to people who closed shops and lost jobs. No one has yet to establish how the bill will be paid for the banking bail-out. The lords and gentry have regained control and the peasants will struggle to survive as the banquets are held at the castles.

  • Comment number 45.

    Glass-Seagall which was dismantled by the US and would have to have the backing of the US to be re-instated is what most people want to see.

    Never again should any country be put in a position where its whole economy can be put in jeopardy by the misbehaviour of the banking system.
    Not only the economy but the whole fabric of our society.

    Lessons should have been learned a year ago but those in control seem to have gone back to sleep.

    The country can't wait for global agreement and should have put plans in place to address future problems by the creation of a national retail bank structured in such a way that if all other banks collapsed the country would not follow suit.

  • Comment number 46.

    The ONLY reason the UK retail eceonomy hasn't dived is the reduction in mortgage rates, which have,(so far) helped to offset the lower spending caused by mass redundancies.

    For those fortunate to still be in work the reduction in mortgage rates led to increases in disposable income of well over a hundred pounds a month. Some who read these blogs may feel that does not sound significant? If so you should just count yourself lucky and keep your comments to yourself!

    I would be selling retail shares the moment I get a sense that interest rates will have to rise, (unless growth elsewhere was rocketing.) However, if growth elsewhere is rocketing it will mean we are on the way to yet another asset bubble inflating, and we know how that will end.

    Barclays, along with others on the High Street, is one that does so-called "relationship" banking. I know being a customer of theirs. But, Robert, relationship in this sense is NOTHING to do with those institutions being a good friend whom you can trust. Relationship banking is purely a euphemism for SELLING or Customer Sales and that's it. The "relationship" that Tesco's and M & S have with their customers is precisely the same as this. The loyalty of these companies is to their Shareholders, not their customers! That's palpably where the emphasis lies. The businessmen & women running these companies would argue, until the cows come home, that that is precisely where it should lie as well, (and pour ridicule on you for thinking it is something else!)

    If we're back to Basel then we're in trouble right from the word go. The crisis that will happen may take 10 years maybe less, to materialise but, as Greenspan said, Human nature will ensure this will happen again. He suggests tougher Regulation won't even stop this. But at least far tougher regulation might, just might, limit the extent to how far the crisis goes next time.

    They repealed Glass Steagall, we ended up with Global monetary and economic meltdown within 15 years of this happening. This fact alone ought to be screaming to our legislators, economists, fabulous elite, politicians etc, that undoing this legislation was patently incompetent?

    If they're not prepared to reinstate Glass Steagall then they have to create an alternative, (with "teeth!") Yes, the new regualtion we need HAS to be of the LEGAL kind, hello! Not just some accord cobbled together by the bankers themselves. As other posters have asked, how many (unnecessary) economic meltdowns do YOU have to go through before you finally decide it makes sense to vote out the clowns that won't do anything and vote in someone who will!?!

    It makes no sense allowing banks to carry on as if the credit crunch never happened. Their Regulator has commented about banks being socially useless, the arch-creator of unfettered credit, Alan Greenspan, says we'll be here again if nothing changes, the Archbishop of Canterbury has made sensible comments about the poor direction of bankers using the economy, (and our own money) solely for the good of the banks and not of mankind. Some people at the top are on the side of ordinary people and NOT bankers and economists, (even The Queen queried of them why they never saw this coming.)All we need now is a few politicians, WITH A BIT OF SPINE, to kick the bankers into touch. The ones who count are the ones arguing against the banks NOW. Not the (spineless) ones who decide to jump on the bandwagon once it becomes so fashionable that it might win them a few votes!

  • Comment number 47.

    Robert, I fully agree with your proposal for narrow banking. Splitting the casino side of banking away from the retail side is absolutely the right thing to do.

    As I said yesterday, I think it might be good to go even further and split the financial infrastructure part of retail banking (current accounts, debit cards, atm machines) away from the savings and loans part (savings accounts, loans, credit cards, overdrafts etc). The infrastructure bit (which in the modern electronic equivalent of notes and coins) could be moved into a not-for-profit company (analagous to Network Rail), or better still it could be nationalised - which would have the advantage of providing a lot of cheap finance to the Government to help pay for the cost of bailing out the banks in the first place.

  • Comment number 48.

    #36. writingsonthewall wrote:

    "With a current account which has not had less than 15k in it any day this year you can see the idiocy of the credit scoring system."

    The amount of money in your bank account has no bearing on your credit score. You could have a million pounds in there, but if you'd missed a single credit card payment by a day or two or had simply shopped around for a loan your credit score would take an immediate hit.

    Why would you want to keep £15,000 in a current account anyway, earning next to nothing? It's not difficult to get almost 3% in an instant-access savings account.

    And if you'd bought bank shares with that money back in January you'd have had close to £75,000 by now...

  • Comment number 49.

    UK Bank
    Customer: I've sold a house, and the money has just been paid into my current accoutn 1 hour ago. I want to open an account to put the money into. One that will allow me regular access, but away from my current account. I intend to use the money for a specific project over the next 12 months and will need regular access.
    Banker: Madam, this is a life-changing amount of money. We have a fantastic range of investment accounts. Your money will be locked in for a period of 3 to 5 years. These are fantastic investment opportunities.
    Customer: No I need easy access to my money
    Banker: We have a fantastic range of investment accounts. Your money will be locked in for a period of 3 to 5 years. These are fantastic investment opportunities.
    Customer: No I need easy access to my money
    Banker: We have a fantastic range of investment accounts. Your money will be locked in for a period of 3 to 5 years. These are fantastic investment opportunities.
    Customer: No I need easy access to my money

    [cycle repeats until customer leaves and opens an account at the building society next door].

    UK Retail
    Customer: I'm looking for a specific item, X do you have it?
    Assistant: Nah
    Customer: Do you know where I can find it?
    Assistant: Nah (with a shug, and return to their magazine)

    Egyptian Retail
    Customer: I'm looking for a specific item, X do you have it?
    Assistant: I'm sorry madam, we don't have that exact thing, but we have these similar items. Would these be good for you?
    Customer: No, it has to be exactly X.
    Assistant: Madam, if you would please take a seat, I will send out our Junior Assistant. There are a number of other stores in the area and they may have exactly what you want.

    5 months later, the retail bank is bust.
    Now, Robert, what lesson would you like the banks to learn?

    Listening? Customer service? Return customer and free marketing?

    They haven't managed that one yet have they? And when they do, let's hope they can do better than UK retailers this time. Some how, until more than few of them are out on their ear, penniless with their lives trashed like ordinary people, or in the jail, they will learn nothing of much use to any of us.

  • Comment number 50.

    #35 Rbs_temp wrote:

    "My bank is certainly not ripping me off. They're charging me 1.75% on my mortgage, pay 2.8% on savings, (almost 6% on my ISA...)"

    Prove it! I bet they're not!

  • Comment number 51.

    We're back on the banks again...

    Here's how people think the banking system works.

    1) People deposit money in banks
    2) Banks lend the consolidated money to people, charging fees and interest in order to negate losses due non repayerment and also to cover running costs and profits
    3) The depositers get a portion of said profits in the form of interest


    Would be nice if it happened, and ideally that should be the actual rules, but it isn't!


    It actually goes like this:

    1) Central bank creates money from thin air, ie just prints it or provides an electronic receipt to pass it on
    2) Banks get a deposit of imaginary money from central bank
    3) Bank keeps this as a percentage of what it is allowed to lend
    4) Lends more money than it has
    5) STILL charges interest and fees, making a massive profit
    6) Pays back central bank. Maybe

    Net result:
    Amount of money in circulation constantly goes up, devaluing all that money. ie, inflation.
    Eventually a crisis occurs
    Crisis is 'solved'
    Time elapses
    New bigger crisis occurs
    Crisis is 'solved'
    Time elapses
    New bigger crisis occurs
    Repeat until....when?


    Can the banks learn from retail?
    Why would they want to?

    Retail have to actually sell goods and services that exist, and deal with their own shortcomings if they fail.

    Banks sell money they don't have, in a system where you legally can not get by without dealing with them any more.
    If they have shortcomings, then the public has to pay for it- by getting the central banks to print even more money that doesn't exist to plug the gaps of a system that is inherently flawed!


    There is only one way to undo this Gordian Knot of a system we now have...


  • Comment number 52.

    Spot On! I've read both pieces now and they are on the right track. Narrow/Limited Banking is part of the answer.

  • Comment number 53.

    Robert, why do you find finance in the hands of Tesco or Sainsbury's any more frightening than the old guard?

  • Comment number 54.

    35. At 1:10pm on 16 Sep 2009, rbs_temp wrote:

    "My bank is certainly not ripping me off. They're charging me 1.75% on my mortgage, paying me 2.8% on my savings (almost 6% on my ISA!) ad don't charge at all for using my debit card overseas. I get excellent service and value for money."

    "If anyone feels that their bank is ripping them off then it is up to them to take their business elsewhere."

    rbs_temp - always quick to defend the banks eh? Ah well here we go again...

    1) Your bank may be lending you money at 1.75% but it's borrowing it on the Libor at 0.3% with the overnight rate, even the 12 month rate is only 1.5%. Now considering the bank is now doing NOTHING for this profit (because previously they carried interest rate risk and default risk but the Government has removed that for them) - I count that as 'ripping off'.

    2) I presume you are an existing customer on a tracker (like I am) but the cheapest new entrants can get is 1.99%....and that's on condition they have nearly HALF the value of the house as a deposit (40%) plus a massive £1500 arrangement fee. You may think "I'm alright jack" as could I - but I am not so shortsighted to realise that without FTB's there will be no housing market.

    3) Almost 6% on your ISA means you were already locked into a rate before they declined. There is no such product available to new customers out there and your offer must end at some point. Abbey offer a 5.5 rate but only if you match your investment with a qualifying product. i.e. you have to double your investment to get the rate for half.

    4) 2.8% on your savings, impressive - however when you consider the tax you should be paying (at least 22%) and the fact that inflation is running at 1.6% - is it actually earning anything? I also noted today that whilst the headline rate is 1.6% the breakdown shows that all the essentials, food, travel, household goods + svcs, fuel etc are all rising well above 1.6% and house prices, clothing and motoring expenses are dragging the number down. Therefore unless you buy houses like the rest of us buy groceries - your savings are loosing REAL value.

    4) "don't charge at all for using my debit card overseas" Well I should think so too - the cost to a bank of an international transaction has been less than 0.5p for years. I can see you're grateful for being given something you should have had since electronic banking was introduced - so I won't upset you.

    5) I can't really argue with the service you receieve as it's subjective. However I suspect the bank is not sending someone round to your house to collect your cheques and deposits and to shine your shoes each morning - which is what I would expect.

    6) Finally "If anyone feels that their bank is ripping them off then it is up to them to take their business elsewhere."
    As I have shown above many of the deals on offer are for existing customers only and not new ones - therefore 'going somewhere else' is not actually practical or financially wise. I don't know if you've noticed but as a result of the recession we have even less banks than before and most of them are owned by the same entity - meaning even when you move - you don't!

    The reality is that banking is like taxation - there are no rules and there are no limits, it's all about getting away with as much as you can without going overboard, but since your customers have little choice of alternatives then you can really push them to the limit.

  • Comment number 55.

    uncannyWalter wrote:

    "(2) didn't HBoS' model, under its last CEO, take all he had learned at ASDA and apply it to that retail bank? "

    Very good point, what Robert doesn't realise is that the CDO market was like a supermarket tactic where a few big players tried to squeeze out the smaller ones by cutting the price of goods (in this case mortgages) to an unrealistic and unsustainable price - hence the cheap credit in abundance in a chase for increased market share and monopoly.

    Big supermarkets empliy this tactic with their special offers - especially petrol where they actually sell it for less than they pay for it and make up the difference in the shop.

    It's another example of false economy.

  • Comment number 56.

    45. At 2:35pm on 16 Sep 2009, virtualsilverlady wrote:

    "Never again should any country be put in a position where its whole economy can be put in jeopardy by the misbehaviour of the banking system."

    Unfortunately just about every economic crisis in the past has it's roots in mis-behaving banks and it doesn't look like the poiticians are in a hurry to change it this time either.

    Only when they feel the cold breath of revolution on their necks will they decide to change their minds. Until then they will talk and talk but not actually do anything about it.

    You watch the 'clamping down on bankers bonuses' evaporate over the next year or so - or when recovery comes....

  • Comment number 57.

    48. At 3:07pm on 16 Sep 2009, rbs_temp

    I don't need a lecture in how the credit scoring works thank you - however you might need to be informed that the scoring also relies on thing 'outside banking' - i.e. The post, the competence of banking staff, the ability of the bank to update records correctly etc.

    As I said, the bank admitted fault but they still haven't rectified it 1 year on. I can't do it myself - I am reliant on them to contact Equifax.

    You also seem to be defending the system with reasons why it's rubbish:
    "or had simply shopped around for a loan your credit score would take an immediate hit."

    So you do know that the activity of 'loking for credit' can adversely affect your score - it's a good thing that 'viewing houses' doesn't affect your ability to buy one! I would have thought someone shopping around is a sign of financial competence - and yet the system works in the oppostite direction seeing this as a sign of risk.

    Finally:
    "Why would you want to keep £15,000 in a current account anyway, earning next to nothing? It's not difficult to get almost 3% in an instant-access savings account."

    ...wouldn't you like to know....

    "And if you'd bought bank shares with that money back in January you'd have had close to £75,000 by now"

    ....and for how long? and what FUTURE predictions can you make rbs_temp? It's all well and good predicting past performance but can you predict anything going forward? Have you considered that there is a good chance there may not be any banks (un-nationalised) in 7 years time?

    I don't gamble on shares which is exactly why I have 15k in my current account - what do you have - lots of paper promises?

  • Comment number 58.

    51. At 3:40pm on 16 Sep 2009, LeviticusS

    That should be in added to every Economics text book in the land - well done.

  • Comment number 59.

    Post 3 a few thoughts on your points raised.

    Consumer spending may be going up because people have put off spending for a while and basically you need new underwear, socks, shirts etc sooner or later. I imagine it is a small boost due to previously repressed demand or you could be right and people have thought well we are all going to die one day.

    Agree re the VAT rate. I have been thinking just how much will I spend before VAT goes back up? Has anyone else wondered where all those £9.99 objects down to £ 9.77 went? could it be retailers quietly increasing margins? Anyone think that Gordon might bottle the VAT issue and keep it at 15% for another six months i.e. until after the next election?

    Re the £ 175 billion that could help but if other stories are anything to go by what has it really helped other than allow banks to rip us off even more?

    I disagree re Tesco's and M&S I think they do cherish customers as they know that the regular punter is their bread and butter, quite often literally.

    Trust me there will be more than a few people at the top of our High Street Banks losing sleep over Tesco setting up a fully functioning banks after all it is ripping off the UK current account holder and personal loan mug that allows them to continue gambling on dodgy risks with our money.

    I imagine Tesco Bank may well end up like Direct Line in insurance and cherry pick the better customers and those they can make money out of. After all where do you think all that clubcard info goes?



  • Comment number 60.

    'In different ways, they arrive at a similar conclusion: that a healthier banking industry would have a greater variety of banking institution; and there should be many more specialist or narrow banks, concentrating either on retails services for individuals and small businesses or on the more sophisticated products (the casino services) apparently still desired by big companies, investment institutions and governments.'

    >>>>>>>>>>>>>>>>>>>>>

    Robert
    Excellent analysis - although, I think that you will find that, if you check through your previous blogs - you will see that most of this has already been proposed by a variety of contributors - some dating back to last Christmas!

  • Comment number 61.

    Narrow banking is nonsence. Lloyds, HBOS and RBS were much narrower in their business models than HSBC and Barclays. HSBC and Barclays have not needed government money. They are diversified and profitable. What we need is well run banks. And what we need is to allow the well run banks to reward their staff for being well run.

  • Comment number 62.

    #50. spareusthelies wrote:

    "#35 Rbs_temp wrote:

    "My bank is certainly not ripping me off. They're charging me 1.75% on my mortgage, pay 2.8% on savings, (almost 6% on my ISA...)"

    Prove it! I bet they're not!"

    Clearly, I cannot prove it on a forum such as this. But I can give you the facts, and you can decide whether to believe them.

    I'm with Nationwide. I have a below-base-rate tracker mortgage (which had a floor of 2% but Nationwide allowed it to fall to 1.75% before imposing that condition), get 2.8% on my Regular Savings account (check their website) and was canny (lucky?) enough to transfer my entire instant-access cash ISA into a 3-year fixed-term ISA bond towards the end of 2007, just before interest rates began to fall.

    Not all banks rip off their customers, although I have to admit that is unlikely that Nationwide would be charging me 1.75% on my mortgage if they were not legally obliged to honour the agreement they made with me.

  • Comment number 63.

    59. At 4:29pm on 16 Sep 2009, Ian_the_chopper

    Consumer spending - agreed, what the consumer is actually thinking is anyone's guess - which is why Economics is all guesswork.

    VAT rate - very true, in fact a return to the old rate might not see an increase in prices but a slimming of margins in stores - which might have a more detrimental effect. However I will be surprised if they keep the rate at 15% - because we all know it's difficult to get something back from someone the more they get used to it.

    175 Billion - again, very true, it does seem this money never made it to the high street. However the low interest rates might have helped here as households have more disposable income. Banks can afford to lend at the lower mortgage rates (for exisiting customers) as they are being subsidised by QE.

    I think I was objecting to the 'relationship' nonsense from Robert - imtimating that we all have some sort of loyalty to our supermarkets. In reality people might have loyalty to their local shopkeeper and be prepared to pay for more - but supermarkets are all about price - which is why LIDL and Aldi benefitted during the recession. Waitrose and Sainsbury's lost a lot of custom as they are seen as 'high brow'.
    However I am always very dubious about supermarket results, they all seem to be on the up generally - without impacting each other too much.
    I suspect many of the profits are coming from things outside of supermarket retail - petrol sales, land banking etc. and now they want to add 'high street banking' to their bow.

    So we've had banks too big to fail - what about when some bad practice brings down our supermarkets? Then we will loose both banking and a critical part of life - eating. Sounds like a very bad plan to me....

  • Comment number 64.

    The banks are too big to fail, and as time has passed they are watering down any effective regulation, so just like many people were saying even last year, now the dust has settled its business as usual for the banking sector while the taxpayer will forever stand behind whatever mess they get themselves into....and they know it!!

  • Comment number 65.

    61, roundness wrote:

    "Narrow banking is nonsence. Lloyds, HBOS and RBS were much narrower in their business models than HSBC and Barclays. HSBC and Barclays have not needed government money. They are diversified and profitable. What we need is well run banks. And what we need is to allow the well run banks to reward their staff for being well run."

    Yes, of course. And, by the same rationale, not everyone is a criminal, so we don't laws.

    I think what we are debating is what checks and balances need to be put in place to promote the responsible running of banks without destroying their ability to be profitable whilst, at the same time, protecting the public interest, both individual members of the public and the state (the collective public), not whether the likes of HSBC and Barclays were canny or lucky (and, by the way, neither of them escaped the current débâcle entirely unscathed).

  • Comment number 66.

    A retailer can balance his/her inventory through his/her supply chain for as long as there are punters wanting to put their readies in his/her till at a price that leaves him/her with a bit of profit.

    From the events of last year it seems that banks are not able to do anything quite as clever. These mega-banks, like mega-government, are inflexible, indifferent to their client's needs and a liability to anyone who comes into touch with them.

    Now and again my retail bank tries to sell me a new deal. I tell them each time that all I want from them is a decent rate of interest on my current and savings accounts. I never get it but I can get all sorts of loans and insurances none of which I want. The joke is that this is a bank I have been with in one form or another for 42 years! I would like to go elsewhere but they are all the same!

    With regard to dividing the banks between retail and investment concerns this is a no-brainer, so why isn't it happening? Well there is a report doing the rounds that says there is another GBP 130 billion of septic asssets still to be declared. My guess is that all of our retail deposits are keeping the investment banks afloat so they can't divide them!

    What a swindle; what a complete and utter swindle! I don't like M&S and I don't particularly care for Tesco but these people are moral giants compared with the sort who are running our banks. They just wouldn't dare to behave like that.

  • Comment number 67.

    "banks have disproportionate lobbying clout, especially over Congress."
    They may have more lobbying clout in the US, but at least the American Public got some "pro quo" for all their "Quids"

  • Comment number 68.

    with the EU probably calling for Lloyds to divest Halifax....does this mean that LLoyds shareholders have suffered in vain... thanks Gordon, yet another screw up.

  • Comment number 69.

    #62 RBS-temp

    That post was a bit more gracious RBS, and more becoming.
    Try and remember that not everyone has the time and the capital that you appear to have. Some of us are using all our spare cash trying to keep our staff off the dole queue, and ride out this credit/cashflow monster.

    I hope you have been pulling out some of your gains on RBS shares periodically. They are not on a smooth upward curve any more, and lucky they have generous benefactors (me, for one).

    Regards,

  • Comment number 70.

    We've been the ones foolish enough to give the bankers all the power, surely the only way to stop this is by taking it back?

    All this talking of fixing it seems like a false positive to me, I'm aware that there is no easy way out of this problem, everything is now dependant on banks and credit, but what about radical change? All the while we've got such vested interests in the banking system "working" for us we're not prepared to cut it's throat, but maybe that's exactly what needs to happen?

  • Comment number 71.

    M&S and Tescos 'cherish' the relationship with individual customers

    This is drivel

    In my bank(s), I see the same members of staff every time I go in. They do a great job and know their stuff

    In M&S and Tescos who knows who might take my payment at a till. In M&S even finding an open till can be a miraculous event, except in the food hall where I pay 5p or 10p for a plastic bag if and when I have forgotten to take my own. Finding someone on the shop floor, HA!

    And to be frank, if the behaviour of the staff in my Tescos Extra (who I do recognise) is cherishing I might choose to go to one of JJs recommended destinations for re-education just for a bit of light relief.

    In fact its all drivel.

    Over the last 10 years I'd have lost money on M&S shares too

  • Comment number 72.

    And then there's the fact that Next's operating profits improved because of a reduction in finance charges which almost equals the increase in operating profits

  • Comment number 73.

    And quite how this is a business story that matters rather than another

    banks, banks, banks, banks, banks, banks, banks, banks banks banks banks banks banks banks banks banks story, I don't know

  • Comment number 74.

    Robert,

    I think the banks are being forced into divestment to strengthen their capital base. The Tories are proposing that the concentrated UK banking market should be referred to the OFT and Competition Commission for review and possible break-up.New banks / credit unions are to be encouraged. The net effect of the Bank of International Settlements / G20 wotrking groups' guidelines may create self imposed firewalls. Its a process of slow evolution / unwinding from last year. We are going to be living with this for years.I get the impression you want some big international treaty with bankers' blood used as ink for the signatures. I dont see it happening like that. Nor do I see preemptive national legislation coming forward. I couldnt help but wonder whether the Elektra hedge fund guy on Newsnight was promoting a new Glass / Seagal from his industry's ( if you can call it that) perspective.

  • Comment number 75.

    Sadly you're right, Robert - banks can learn from retailers. And do.

    Bad banks can learn from cowboy and maverick retailers, that is.

    So now the 'disease' of the terms of a contract shown on a web-site, e.g. delivery times for say a fridge, being untrue and not being met by the company because in one place it says "Home delivery within 5 days" but somewhere else - where it suits the company's staff to quote from - it says "home delivery FROM five days" and other such nonsense is transferring from retailers to bankers.

    Sadly you'll find that sort of thing in many places in UK retail with customer service agents telling you it was a technical mistake, or some other bull, when it was clearly intended to mis-lead the purchaser into believing you'd get the product faster and thereby influencing your decision to buy from them.

    Yep, and the banks have copied that con trick.

    On Abbey's on-line banking site it tells you that you can change your overdraft limit and that it only takes one working day. It took me two failed on-line attempts and giving someone in Abbey a right roasting about implied contracts to reduce mine down and, even then, today I received a letter, dated 7th September, telling me that Abbey "can't reduce your overdraft at the moment as your current overdraft facility of £xxxxx is available on your account until 1 June 2010. We'll be able to reduce it for you then"

    What total bunkem! So, I must have an overdraft limit to suit the bank, eh? Bet you forget to mention that to the FSA inspectors when they visit!

    Sounds like it's getting close to the time to offload Abbey/Santander shares - they clearly have not got a clue, in my humble opinion. as a customer for many many years (and a shareholder too), about how to run a bank!

    Dear retailers and bankers, if you state on your web-site anything about the services you offer, then that IS part of the contract between you and your customers.

    So, dear bankers, if you tell people they can change their overdraft limit on your website, then either provide the service you have contracted yourselves to provide, or remove the facility altogether. The offer of the service is as much part of your terms and conditions as anything else you write anywhere else.

    And dear retailers, the same applies to statements about delivery.

  • Comment number 76.

    What always amazes me is how as soon as your wages hit your account the money is no longer your cash but the banks cash to do with as they please! They take money off people spin it round and lend it out again to personal and business users. May be the personal and business user should have separate banks to eliminate the risk to personal customers.
    The two should never be allowed to co exist under one entity.
    Commercial lending is completely different to personal lending, surely commercial lending should be done via investors or shareholders?
    The high risk investments should attract higher returns, but consumer lending or should I say over lending is the big problem. Stop the bonuses payments, pay them a flat rate salary and then they have no bias to any particular insurance product. The misselling of endowments, loan protection policies, pension plans which produce miserable returns is scandalous. Yet nobody has been arrested or investigations carried out to find the culprits why vested interest. How many people have been short changed and now find there home still has a sizable mortgage on it? And will end up working way past there retirement age!

  • Comment number 77.

    Whichever way you look at it banks are special.
    Banks have hold of the essence of life.
    The stuff that makes the word go around.
    And how bankers realise it!

    The competition between banks ensures that the banks maximise their profits.
    And where do the banks get their profits from?
    From the rest of us of course.

    The web based, reality site, game "Second Life" allows players to accrue Linden Dollars which are tradable for real Dollars. At a suitable exchange rate of course. About 265:1 currently.

    The laugh is on us however. In "Real Life" bankers accrue dollars in their game that are held at a 1:1 exchange rate with real Dollars.

    Daft I know. But it is what is happening. And we allow it..

  • Comment number 78.

    And a big thank you to the banks for their contribution to the really important figure that reflects the trus state of UK business today - 2.47 million unemployed.

    And bear in mind only 1.61 million are receiving JSA - so how are the other 0.86 million faring, one wonders?

  • Comment number 79.

    i think robert peston looksnlike dr who .

  • Comment number 80.

    #78: Sutara:

    some of the unemployed are X-bankers and financial services. You may have noticed a year ago that you received a letter noting that your retirement and investments accounts had received a debit of maybe 20 - 30%. They claim the money simply vanished. No one wants to explain exactly where the money went. Many of the X bankers and financial services are living very well at this time on that money. Under normal times this would be called robbery but in today's world it is early retirement.

  • Comment number 81.

    "It's been a tough recession for retailers, although the better ones are emerging from it stronger relative to their peers than before the deluge."

    "better ones"
    What. Please define "better ones"

    This statement is offensive to every small retailer that has suffered from a huge drop in customers and the squeezing of bank credit.

    I ask you to withdrawn this statement or perhaps your blog should be moderated.

  • Comment number 82.

    Retail banking transfers are not deposit accounts paying interest. Banks have the ability to transfer money instantly. But instead they intercept those payments and hold them on their books for a week as assets supporting their lending without the consent or understanding of the owner.
    Secondly we have the technology to provide a completely secure means of holding and accessing our money. Yet the banks don't use it. Instead they run an insecure system and offer to make good thefts inexchange for which they use our cash for our everyday expenditure as an asset to support their lending thus enriching themselves.
    We need to view current account retail banking as the modern version of the mint. It is not private business, it is a public utility that should be under public control.
    This is where the world is going. We should get on with it and sell the technology to the world. We need the money.

  • Comment number 83.

    You make a good case, Robert, for separating the utility part of banks from the more commercial (and 'risky') activities. But there is a counter-argument - Lehman. Lehman wasn't a high-street bank, so it wasn't necessary to save it to protect the man in the street or the corner shop.
    But still allowing it to to bust is now considered to be a major mistake which risked destabilisation of the western economy. So is there, in fact, much liklihood that the separation proposed would achieve the decoupling of risk required?
    Another counter-argument is that the big problems at HBOS and others in the UK was business lending that presumably fits the narrow banking model. How does the separation help here?

  • Comment number 84.

    Our banking system remains fundamentally unstable because global banks mix retail banking, with merchant banking, with their own speculative or casino trading.It will surge forward enriched with a pot of taxpayers gold but this it will eventually use, come upon another crisis which nobody foresaw and come back for more on the grounds that it is too big to fail. We have to set this muddled house in order. Every time taxpayers come to the rescue there is an element of the poor bailing out the rich and this has to stop.

  • Comment number 85.

    But we don't want retailers to do better because that would be a sign that lending is increasing and the trade gap is growing again.

    It would also be an indication that much as suspected; the Govt's promised to rebalance the economy were completely meaningless.

  • Comment number 86.

    re: rbs_temp #62

    The Nationwide is a building society.

    it is good though to read differing opinions.

  • Comment number 87.

    Never mind banks learning from retailers, how about retailers learning from banks!

    This morning yet another retailer (John Lewis) announced an increase in profits and yet a much smaller increase in sales.

    Retailers are clearly raising their margins (unless they're getting away with pay cuts on the sly) - thereby squeezing the last few coins out of the consumer who is currently lying in a ditch after having been mugged by the banks and Government combined.

    This is a banking trick - raise prices without justification or any annoucements.

    This is why the inflation figure is misleading, the things most of us buy regularly are going up - only non-essential items are falling in value.

    Unfortunately the BoE are basing their strategy off this misleading figure which is a bad omen for all of us....

  • Comment number 88.

    Comment 87 WOTW

    It is always possible that John Lewis are clearing inventory to release cash to the business. This will allow them to both reduce price and increase profit.

    Most retailers have had warehouses over-loaded with slow moving stock following the purchasing boom of the last few years and need to unload these extravagances in order to cut storage costs and have something to attract the customer.

  • Comment number 89.

    Banks can learn from retailers. Hmmmmmmmmmm where was it where Andy Hornby worked before the Halifax?

  • Comment number 90.

    62,

    ‘Not all banks are ripping off their customers…’


    Well,

    I’m also with the nationwide and here is my tale. I popped into the local branch and asked for a quote on a 10 grand loan (just out of curiosity), I asked what the interest rate would be and they replied 7.7% (Personal Loan rate). Now I have 10 grand in the bank and I receive a measly interest rate on that (e-savings account).

    So in effect, they are loaning my money out to other people at 7.7% whilst giving me circa 1% on mines. Worst of all is, they are offering to loan me my OWN money back at 7.7% Interest.

    Ripping customers off? You’re having a giraffe! They are all crooks!!!

  • Comment number 91.

    Banks have a lot to learn from retailers, as a whole high street banks don't look after customers, but screw them at every turn, £30-70 for an overdraft letter,costing a £1?? The government has got a lot to answer for still allowing these "Penalty fees" still to be issued and not resolving the back log of millions of claims. The government is just a jellyfish quivering to the bankers sharp practices.


  • Comment number 92.

    Does this all mean that we are now ethically justified in robbing them or not?

  • Comment number 93.

    "Banks can learn from retailers."

    Not really, but what they can, they will have taken and used already.

    The question is, "What can retailers learn from banks?" In Tesco's and M & S's case, it's that net profits of 20% or so can be earned on income.

    Also, that little old ladies using a bank account, to receive their pensions by direct credit, tend to draw it out every week, (leaving a zero balance,) are unprofitable and therefore need pricing out as customers. (Were this not be socially unacceptable at the moment they would definitely be doing this. They have voiced a desire to charge for bank accounts, this would include the elderly.)

    I mean the temerity of pensioners, drawing out their own money, have they no shame?!

  • Comment number 94.

    81. At 00:30am on 17 Sep 2009, moneywhatmoney wrote:

    "It's been a tough recession for retailers, although the better ones are emerging from it stronger relative to their peers than before the deluge."

    "better ones"
    What. Please define "better ones"

    ...I think Robert means 'Bigger ones' - as is the case with the banks, and all industry.
    If we all make it through this recession there will be a lot less choice out there as only the mammoth stores will survive as they have:

    a) The purchasing power
    b) The best located stores
    c) More chance of borrowing from the banks
    d) Alternative ways of funding (Share issues etc)

    All the smaller retailers will either get eaten or undercut to extinction.
    It happens in every recession and this one will be no different I suspect. The only saviour is the 'local money' idea which does seem to be catching on - but no fast enough for some local retailers.

  • Comment number 95.

    Andy Haldane BoE ' Credit is Trust.'

    +++++++++++++++++++++++++


    Credit equals 'Trussed' more likely

  • Comment number 96.

    I think the greatest issue with the regulation of banking within the UK is that even though we have severely incapacitated our banks instead of letting them go bust, there have been no new banks

    Where is the competition in the market? Even now we have less banks, and therefore the competition is less

    Do any newbies wanting to enter have too much regulation to fill in?

    Are these zombie banks still able to wield huge anti-competitive power?

    Is the government preventing new banks emerging, because they know that these unburdened institutions would rapidly take away market share from the zombies, and therefore the public investment in these zombies would be obliterated?

    In short, why has capitalism been suspended in the banking market?

    I also believe that your link to retailers is tenuous at best, it is hard to be customer friendly when you know that you are fleecing the customer to improve your own balance sheet. In the cut throat world of banking being nice gets you second place.

    I do believe that the problems with the banks and the financial institutions is what this government has done to it. Eventually capitalism will catch up and eviscerate these zombies, but I fear that until then the correction in the markets will continue until investors once again trust because so far no new legislation or commitments have been introduced to stop the "credit crunch" happening again. Is that because the banks know that "they are too big to fail"?

    Brown and Darling have created an unnecessary millstone by suspending normal business rules applying to the banks (but not to others) and in their unfairly uncompetitive world those zombies are rebuilding their reserves off customers whilst the tax payer funds their operations to do so.

    If they had crashed and burned as they should, then the toxic debt would already be a footnote, and we would have new institutions that recognised the boundaries.

  • Comment number 97.

    Retailers profit margins-

    By holding on to the VAT reduction (from 17.5% to 15%) -as most retailers seem to have done- instead of passing it on to their customers, you could increase your profit margin substantially ........ without any increase in turnover.

    e.g. if your profit margin on the goods is -say- 10%, and you take the 2.5% VAT for yourself, since there is no overhead cost on this at all since it was a tax going to HMRC, your actual profit has just gone up by another 25% (simplified).

    Strangely enough, the customer is still paying full whack.
    The lesson -Government intervention almost always fails, however well intentioned.

  • Comment number 98.

    Other thoughts on other drivel

    Northern Rock and Bradford and Bingley weren't 'casino' banks. They weren't universal banks. They were small regional outfits (in a global sense). HBOS wasn't very global or universal either.

    RBS overstretched itself buying ABN Ambro which was the last gulp of a gobbling spree that had gone on for years

    HBOS and RBS lent ludicrous sums of money to all sorts of businesses that went into liquidation

    They all lent long and borrowed short. This was pretty much the problem for all the british banks that got into real trouble. Shouldn't they know that interest rates can go up as well as down?

    And where, precisely were the regulators



  • Comment number 99.

    John Lewis Partnership

    Six month figures to 1/8/2009

    Operating profit down 3.1%
    Profit before tax down 19.6%
    Net debt rose by 148,000,000
    Finance costs were 24% higher

    John Lewis (not Waitrose or Greenbee) for the same period

    Operating profit down 50.9%

  • Comment number 100.

    On a different note

    Many of these retailers depend for their livelihood on selling vast amounts of cheap throw away merchandise manufactured overseas using hideous amounts of raw materials

    How long do your underpants or T-shirts last? What do you do with them when they shrink or disintegrate? How much did you pay? Was life really worse when you bought underpants made in Leicester?

    What does a 'better' retailer mean, in these terms?



 

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