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

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  • 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

 

Comments 5 of 199

 

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