Why Labour's bank break-up has not hurt shares

 
City workers walking past buildings in shadow

Investors seem to have taken in their stride Ed Miliband's pledge to break up the big banks and impose a ceiling on their respective shares of the market.

The price of Barclays and Lloyds shares dropped less than 1% and those of Royal Bank of Scotland by a bit more than 2%.

Which is not desperately significant on a day when the stock market as a whole was largely flat.

So why the lack of shock and awe?

Years

Well investors apparently doubt Labour's resolve to do what is necessary to force the disposal of hundreds of branches - and also think the reforms would take many years.

For example, the soon-to-launch Competition and Markets Authority could not, as currently constituted, simply be instructed to devise a way of creating two new challenger banks from the existing banks in just six months.

Nor could it be told to set a new legal maximum for the size of banks in the same time frame.

So Ed Miliband would have to introduce new competition legislation on taking office - which Labour tells me it would do, but investors believe could not be passed quickly or easily.

And bankers also believe that even if the CMA imposed a new cap on the size of banks, that could be challenged under EU law.

Or to put it another way, investors seem to believe that Mr Miliband is posturing to win votes, and would conveniently find a way to abandon the break-up plan after the election.

Which, according to Mr Miliband's close colleagues, shows that the City remains a bit short-termist and perhaps naive.

 
Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    0

    Comment number 138.

    Labour should police the city, not be a part of it. I do understand we the taxpayer have to fork out up to £85,000 to each depositor if a bank goes belly up. (though I do wonder what insurance companies are now for ?) so we have a vested interest. But let capitalism hang it's self and clobber it for as much tax for the UK coffers while they are doing it.

  • rate this
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    Comment number 137.

    135. Graucho Meldrew

    An apparently different bank

    http://www.bbc.co.uk/news/business-25336448

    Milibrands shuffle on the High St is meaningless unless totally different players come forward. I really dont see that happening from trad outfits

    In any case Milibrands idea seems very yesterday with the relentless march of IT being adopted by banks. More & more will shift to internet and mobiles

  • rate this
    0

    Comment number 136.

    Marko@132
    Quite.
    Time to give the bankers a bread.
    Ultimately it's the politicians who take responsibility.
    Who devised the "light touch" regulatory framework?
    Who were accessible to bankers but not to the regulators?
    Who ennobled Fred the Shred Goodwin?
    The answer Blair, Brown and Balls.
    Not that the Conservatives would have done anything much differently if they had been in power.
    Alan

  • rate this
    0

    Comment number 135.

    @134 Big companies can raise money on the stock and bond markets. It's small to medium sized ones that need banks, so two smaller banks can do the job of one big one and give the same tax yield. The other example of a trading nation that allowed its banks to get oversized and run riot is Japan. They are still paying the price.

  • rate this
    0

    Comment number 134.

    131.Graucho Meldrew
    As good judgement appears to be rare, banks have to be smaller for damage limitation on failure.
    ~
    What about the effects on the rest of business & industry? And where will you make up the tax difference? Tax all food, not just the 'sugar' heavy? Tax salt? Tax water? Make VAT apply at full rate to everything?

 

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