Labour to force bank break-ups

 
Canary Wharf

Ed Miliband will on Friday commit that a Labour government would create two new large banks to challenge the existing big banks.

It would instruct the soon-to-be created Competition and Markets Authority to devise the exact way to create these banks.

Labour officials have told me that it would expect the new challenger banks to each have at least 6% of the personal current account market - which was a criterion used by the Independent Banking Commission for an effective competitor.

These officials acknowledged this would entail the break up of the UK's largest retail banks, including Lloyds and Royal Bank of Scotland.

They accepted that the uncertainty about the future structure of the two banks could blow up any attempt to privatise RBS before the election, or to sell any more of taxpayers' shares in Lloyds before it is clear who will form the next government.

'Too much power'

It would be very difficult to value either bank before it is known whether the break up would happen - which is why privatisation would be jeopardised.

Labour's plans could also lead to the forced sale of branches by Barclays and HSBC.

The plans are therefore likely to lead to falls in the share prices of big banks on Friday.

Extracts of a speech to be given by Labour's leader tomorrow say that "we have to get to the root of the decades-long problem in British banking: too much power concentrated in too few hands.

"Britain has one of the most concentrated banking systems in the world, with just four banks controlling 85% of small business lending."

To tackle the alleged excessive market power of banks, he will pledge that a Labour government would instruct the Competition and Markets Authority (CMA) to rule on:

1) How many "additional branches the big banks will need to sell off".

2) "The timetable for the divestment of branches beginning within six months of the report and completed within a five year maximum parliament".

3) A new maximum threshold for market shares which would trigger future CMA investigations if banks grow above that size - and an automatic ban on any takeover that created a bank bigger than the threshold.

Or to put it another way, Miliband will pledge that big banks cannot get any bigger.

Customers

Bankers have said to me this would lead to what they call a perverse outcome, that as they approached the maximum size they would dump customers they deemed low quality or loss-making.

It is unclear whether these customers would be able to bank elsewhere.

Labour added that the CMA will be instructed to forge the new rules and order the branch disposals based on three criteria:

1) The creation of "at least" two new challenger banks "with significant market shares".

2) Improvements in the price and quantity of lending to small businesses.

3) Improved service for all customers.

On Wednesday, the governor of the Bank of England, Mark Carney, told the Treasury Select Committee that "just breaking up an institution doesn't necessarily create a more intensive competitive structure... It's not just about one aspect. You need to look at the entire business model and risk profile."

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

How Labour pays for student fee cut

Labour would reduce tax relief for those earning £150,000 or more a year, shrink maximum pension pots to £1m and cut maximum annual pension contributions to £30,000 to pay for a cut to £6,000 in student fees.

Read full article

More on This Story

More from Robert

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • rate this
    0

    Comment number 199.

    Words fail me. Milliband's failure to understand the dynamics involved in banking is disturbing. Bank bashing seems to be a cheap way to score political points. The reality is they are attempting to regulate competitive forces. That is like urinating into the wind, all you do is wet your shoes.

  • rate this
    0

    Comment number 198.

    John_from_Hendon@197
    "how corrupt they have become"
    The 'they' you write of… 'are us'!

    How much 'less corrupt' with just Income-Max @20xMin to aim for?

    Lacking shared aim, how much more driven to 'win'?

    Who is NOT 'corruptible' by insecurity? Who outside equal partnership is NOT subject to conflict of interest, enough to silence communication up & down hierarchy of supposed 'responsibility'?

  • rate this
    0

    Comment number 197.

    190.David
    "171.John_from_Hendon
    "You do not seem to understand that banking is not a market it is a cartel that acts against the well-being of everyone."

    If that's the case, deal with it under existing powers."

    Of course they should have, just like Murdoch should nave been dealt with.

    The fact they (the establishment) haven't shows just how corrupt they have become.

  • rate this
    0

    Comment number 196.

    @192.Bob Roberts

    You are correct but the main reason why this won't happen is that the regulators were as guilty by their negligence - and they're Teflon coated civil servants. If a banker is jailed for bankrupting a bank, what penalty should apply to a political party that bankrupts a country?

  • rate this
    -2

    Comment number 195.

    CO@191
    "easy to accept sacrifice"
    (of others)
    And for politicians to win votes scapegoating bankers (unequal ALL 'corrupted': insecurity, fear, greed, conflict of interest)
    And to 'earn backing' by sham (Osborne for Min Wage rise in slipstream; Miliband to trim High Street shadows)
    'Market faith' fails hypocritical, 'inequality to be competitive': agreed on equality, markets will move to serve ALL

  • rate this
    0

    Comment number 194.

    Milliband´s plans will mean British banks will be more vulnerable to foreign take-overs resulting in a sharp increase in hidden costs for UK customers and higher interest rates for commercial borrowers

  • rate this
    -1

    Comment number 193.

    ComradeOgilvy@191
    "Gone
    full employment"

    Never existed
    'Structural' 3% for old Beveridge
    Despite lessons & Keynes, no idea of real democracy
    Current follies beyond sensible imagining: jobs sought in vain thru' wrong end of 'scope. IF agreed on democracy (long-term civilised viability), ALL will belong: EQUAL votes & incomes will drive economy, in 'finding work' - & encouraging it - NO difficulty

  • rate this
    0

    Comment number 192.

    #178
    I don't know why people want bankers jailed. They haven't committed a crime. Businesses go wrong all time, but nobody wants their owners prosecuted. First, you'd have to make a new law allowing for their jailing, and even then you can't prosecute people retrospectively, although I 'm very much sure the anti-banker lynch mob would like that.

  • rate this
    0

    Comment number 191.

    182.AfA

    Gone are the days of full employment. What is startling is that people act as if there are jobs for the unemployed. It helps justify a mean spirit.

    It is easy to accept sacrifice when others are making it, voluntarily or otherwise. Clearly the propaganda has had it's desired effect.

    Let's keep whistling.

  • rate this
    +1

    Comment number 190.

    171.John_from_Hendon
    "You do not seem to understand that banking is not a market it is a cartel that acts against the well-being of everyone."

    If that's the case, deal with it under existing powers. Throwing everything up in the air to deal with a problem for which a solution already exists is not sensible.

  • rate this
    +3

    Comment number 189.

    What on earth is he on? If a bank is good and attracts many customers, so many in fact, that it oversteps Miliband's arbitrary threshold, newer customers can't join and also take advantage of it? In addition, what incentive does it offer banks to give good service if they know they can only have so many customers? Finally, who is some government busybody to tell businesses how big they can be?

  • rate this
    -3

    Comment number 188.

    Labour... finance... illiterate... Gordon Brown...Lloyds twisted arm...all fine comments, but

    1. Big Corporations _are_ BAD - a limit of how much they could grow (especially through mergers and acquisitions) would be welcome

    2. Separate INVESTMENT and RETAIL! That's what you need to do

    3. No more tinkering around the edges, we need more radical solutions about creating MONEY out of thin air
    2.

  • rate this
    +4

    Comment number 187.

    Lloyds Bank shares fell by 0.69% today and RBS fell by 2.10%. Hardly a slide and within what could happen in a normal day's trading. Looks like the market thinks that Labour will not have the opportunity to put it's plans into effect.

  • rate this
    +2

    Comment number 186.

    Miliband is in the 1900s !, branches are being used less and less it's about mobile banking now Mr Miliband...he would be better concentrating efforts on compliance and governance than trying to dictate the market, it is the failure in policing the banks not their size that is the issue, there will be new entrants and as technology progresses so this will increase with customer enhancements

  • rate this
    +2

    Comment number 185.

    179. fallingTP
    1 HOUR AGO

    I doubt that will be a one time hit, above inflation rises to get it there.

    It is affordable if done in the correct way and it would certainly get the chancellor to his reductions in welfare. As this will surely reduce means tested benefits.

  • rate this
    +2

    Comment number 184.

    We need an economy which works rather than the corporate nightmare we seem to have acquired in the last decade or so in which the political class tinker away in pursuit of their own advantage. It is the Seventies all over again.

    What is needed is an economic policy that allows the creation of value on which wealth can be built. Busted banks and a bloated state are the problem: get rid of them!

  • rate this
    -1

    Comment number 183.

    falingTP @179
    "evidence is clear"
    The evidence of the senses is to be respected but also tested. Increasing the Minimum Wage might 'push up all other wages', but in momentary catch-up some small relief is afforded from social exclusion, some pity might be taken on those with no work and little social security benefit, & conscience might take thought with common-sense for equal partnership: NO poor

  • rate this
    -2

    Comment number 182.

    ComradeOgilvy@177
    "can't live on the income"

    Far beyond natural wastage (age & illness) higher rates tolerable (hunger, exposure, market-variable poverty) in 'regulated markets' cloaked by 'democracy'. Sham of regulation & tolerability of fall-out decided by those who can pay to dominate politics, education, media; & those able to pay for self-indoctrination by neutral broadcasters & 'free press'

  • rate this
    0

    Comment number 181.

    Need to use German KfW model with lending to SMEs only.
    Also ATM network should be removed from big banks as they charge New entrants to use so keeping competition out!

  • rate this
    +2

    Comment number 180.

    As the days of January slip past so the thought that the Opposition could become a credible government slips ever further away...

 

Page 1 of 10

 

Features

Copyright © 2015 BBC. The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.