It was on 9 August, 2007 that the penny dropped and the crunch really began, when BNP Paribas said it had to freeze property funds linked to the US sub-prime market because it could no longer value them.
A few days later the Bank of England was told Northern Rock’s funding had dried up and that it was about to run out of cash. We all know what happened next, and we’re still paying for it.
When the dust settled the job of looking at the issue of “too big to fail” and asking if the banks should be broken up was left to the Independent Commission on Banking, led by Sir John Vickers.
It concluded that there was no way of breaking up the banks into businesses that would be commercially viable yet small enough to fail without undermining the whole banking system. Instead, it went for ring-fencing banks’ retail and investment banking operation. That’s supposed to begin in 2019, but the banks are now using Brexit as an excuse to lobby for it to either be delayed or significantly watered down.
Will they get their way? Probably, much like they did with the PPI deadline and the Competition and Markets Authority (CMA) investigation into the current account market.
The final report on the latter has just been published, with a conclusion that was hopelessly predictable. That’s because the CMA, like the FCA and other regulators, is obsessed with switching. The gist is that markets aren’t working for consumers because they’re not shopping around enough. Nothing to do with the banks. It’s consumers who are to blame.
That’s pretty much the sum of the CMA’s final verdict, as it was on the FCA’s recent credit card market study. They’ve all decided competition can be magically improved by getting people to shop around if companies aren’t meeting their needs or expectations. Nothing to do with there being an unlevel playing field between new entrants and the status quo, or with banking culture being as anti-consumer now as it was a decade ago.
The CMA had the resources to look at the hidden subsidies in retail banking and work out how much it actually costs banks to provide current accounts, how much those accounts cost customers and the profit that banks make from them. That should have been the starting-point if the CMA were serious about reform.
But it didn’t bother, which means it can’t even begin to assess whether or not current accounts are good value for money. The findings even acknowledge that many people simply want a better deal from their existing bank rather than go through the hassle of switching, yet the recommendations overlook this crucial point entirely.
Relying on measures aimed at making it easier to switch are a cop-out and an evasion of responsibility. The CMA might as well admit that it either has no idea how to fix the problem, or that it doesn’t want to upset the applecart.
I suspect there’s an element of truth in both, the latter because there’s no appetite to impose changes on the banks that they don’t want.
The CMA had a golden opportunity to improve the banking industry by using this investigation to address serious, structural problems.
But it failed, so here we are in 2016, resigned to the fact that it’ll take another fully-blown crisis to challenge the thinking and the culture that helped create the last one.