Debate On Bank Competition

Unless you have been on a trip to the moon for the last month you won't have failed to notice that the reputation of our banks has hit a new low. The LIBOR scandal has engulfed Barclays and has seen their Chief Executive, Chief Operating Officer and Chairman resign, Parliament has announced there is to be an Inquiry and there is speculation that this scandal could go far deeper and far wider than just the fixing of LIBOR by Barclays.

Restoring the reputation of our banks will not be an easy task but it is one we must begin immediately. Ever since I became an MP in 2010 I have been encouraging greater competition in the banking sector. Therefore, this week, along with a number of Parliamentary colleagues from all Parties, we called on the Backbench Business Committee to grant us a debate to discuss bank competition. Given how timely this debate is and the great interest from many colleagues, the Backbench Business Committee gave us a three hour debate in Parliament on Thursday.

During my speech I spoke of three steps we must take to inject greater competition into our banking sector –introducing full bank account portability; giving the new regulators a specific objective to reduce barriers to entry; and considering again whether to fully separate retail and investment banking.

Bank account portability would mean that a customer would be able to switch their bank account easily between banks by keeping the same account number, same cards, same standing orders, direct debits, credit limits etc instead of having to completely close down an account and set up another one. We can do it easily with our mobile phone numbers so why can't we do it with our bank accounts? The results would be a game changer for banking – barriers to entry would be broken down, new banks would set up, existing banks would be forced to compete, customer service would take on a whole new meaning......

There was a switching rate of just 3.8 per cent for personal current accounts in 2010, three-quarters of consumers have never considered switching their current account, 51 per cent of small to medium-sized businesses had never switched their main banking relationship and 85 per cent of businesses surveyed by the Federation of Small Businesses had not switched their main banking provider in three years. You are more likely to get divorced than change your bank account!

Compare this with other industries and 15 per cent of consumers changed their gas supplier in 2010 and 17 per cent switched electricity supplier. 26 per cent of consumers switched telephone provider and 22 per cent changed insurance provider.

We also need to reduce barriers to entry - the market concentration of the 'big five' is crazy. Lloyds, RBS, HSBC, Santander and Barclays have an estimated market share of 85% of the personal current account market and 67% of the mortgage market. There has only been one new high street bank in the last 100 years which was Metro Bank. Other recent new entrants tend to have either been backed by one of the 'big five' like M&S bank which is backed by HSBC, or have benefitted from Government sell-offs such as Virgin buying the good bit of Northern Rock.

The issue of a complete separation of retail and investment banking should also return to the agenda. It is right that the government should be the ultimate guarantor of retail deposits but that guarantee should not extend to high-risk transactions. If an investment bank goes under, the losses should be borne by those who were happy to take the profits in better times, something the government is committed to achieving.

Now is not the time for timidity for reform in our banking sector and nor is it the time for false economies. We need to focus on enabling new entrants into the market, taking steps that are good for the consumer and SMEs and beginning the long process of restoring the reputation of our banking sector. I would like to finish with a quote from Jayne-Anne Gadhia, the Chief Executive of Virgin Money who said, 'For too long, banking has been more head than heart. We want to put more heart into it.'

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