Is a public service remit for banks a good idea?
I heard a fascinating idea last night. I was on a debate panel as part of the Government’s Independent Commission on Banking, organised through consumer focus, and a clever suggestion came from the floor…
I believe the man who suggested it said he worked for the National Consumer Federation and was using an analogy with the telecoms market, where effectively any company over a certain market share automatically has a public service remit. For example, BT is not allowed to block override numbers, unlike other providers.
His suggestion was that the same should apply to the UK’s big banks – in other words all the mammoth banks (i.e. too big to fail) – have to operate in a prescribed way, even if it goes against the profit motive. My provisional top of the head thoughts on some examples of this are….
- Must offer everyone (with ID) a basic bank account
- Need to loosen up lending criteria for small businesses
- Should not use charging orders or setting off
- Must ensure fair bank charges
In a way, a similar model works in the TV world. To get the prime place on the digital EPG, the former terrestrial channels need to continue some public service remit (i.e. primarily offer a news service) – why can’t the same work in banking?
I wasn’t the only one interested in this, the commission members on the panel, including Martin Taylor (former boss of Barclays), thought it interesting too, and had never heard it suggested before either.
The reason I like it is there is an innate conflict between not wanting to interfere with the open market process – encouraging innovation and competition – but getting to a position where banks have no moral hazard. This seems quite a clever halfway house to me. I’d love your thoughts (link at end).
What I was very pleased about was in his summing up, Martin Taylor said he’d take four main points back to the commission having heard the discussion. Two that I (as well as others) had suggested were in there – the first that we need compulsory financial education in schools to aid a real revolution in banking, and second that we need far more transparency (a minor e.g. being savings accounts should publish the interest rate you get).
They were videoing the event, so presuming it goes up on line I will ensure we put it on the site.
PS. Jan 2010 Watch Citywire Video: We now have a video news piece from Citywire of the event.
PS. One comment said to me afterwards was from the boss of Metro bank who said: “I had always thought you were to the far left of consumer groups, but actually you spoke a lot of sense.” Not quite sure where he got that impression from, I’ve always stated that my problem isn’t banks making profits, it’s that companies spend billions on advertising and marketing and teaching their staff to sell, but consumers get no buyers training and the system is misbalanced.
Interestingly I found myself on the panel putting in a note of caution often, as many were talking on how we can improve things for societies poorest, and those financially excluded. While that’s something I passionately care about, my worry is if we start legislating only to make things better for those people, we run the risk of inadvertently hurting the millions who do use banking products successfully and need to try and balance the interests of both.
