Comment: More banks are not necessarily better banks

But he shouldn’t be mixing the two: a code of conduct has some merit in tackling underlying behaviour but forcing banks to sell branches in order to introduce more competition won’t deal with issues surrounding the rate-rigging scandal, executive pay or the problem of lending to businesses.

For a start, attempts at encouraging “new entrants” have had only limited success. Virgin Money has acquired Northern Rock, but Virgin Money already existed and, at best, this is a case of one out and one in.

Of the other new banks, Aldermore is hardly a household name and has no branch network. Metro Bank may boast about its growth, but this is from a tiny base and its branches are entirely located around London. Asda yesterday announced plans to join Tesco, Sainsbury’s and M&S in personal finance, though Sainsbury’s and M&S rely on Lloyds and HSBC respectively to underpin operations, while Tesco has run into problems since buying out Royal Bank of Scotland.

The difficulties in creating a bank are most clearly evident at Lloyds, which has struggled to offload a parcel of assets that include 632 branches and a couple of ready-made financial institutions in the Cheltenham & Gloucester mortgage business and the online bank Intelligent Finance.

The assets being sold would by themselves create Britain’s seventh-biggest bank, including 4.6 per cent of personal current accounts and 5 per cent of the mortgage market. Combined with the bank assets of the Co-op Group, as currently planned, the new entity will have 7 per cent of current accounts.

But, if the Labour leader had been reading the papers, he would know that selling this business has proved hugely troublesome, with far fewer bidders than had been expected.

The Co-op has wobbled under the quizzical eye of the regulator and its chief executive Peter Marks admitted a deal might not happen. The Co-op is still warning that a deal might not be completed and Lloyds has only managed to reach agreement by accepting a price at the lower end of expectations. It will at least relieve Lloyds of pursuing the even-riskier option of a flotation of the business in a deeply-sceptical market for banking stock.

RBS also received fewer applications than expected when it was forced to sell 318 branches in England and Wales. Clydesdale-owner National Australia Bank pulled out of the auction, leaving the bid process to Santander which now expects to pay £300 million less than originally negotiated as the business has fallen short on a number of targets.

Ed Miliband’s tub-thumping is a clear attempt at usurping Business Secretary Vince Cable’s role as bank basher in chief. He wants to capitalise on continued public frustration with the coalition’s record on tackling successive banking issues. It is accused of compromising on shareholder power over executive pay, refusing to hold a full public inquiry into the Libor scandal and being unable to trigger a faster flow of funds into companies.

But the actions so far taken also represent some progress in controlling the banks without imposing restrictions that would hinder the more positive aspects of their operations.

A big question remains over the effectiveness of the Vickers’ recommendation to ring-fence high street from investment banking activities. The principle of splitting businesses that were built to cope with the demands of global customers is not proven and, in time, it is likely they will once again be reunited or that the divorce will never be absolute.

Of course, any measures such as greater powers of disqualification that would hold bankers to account for their actions have to be considered. Systemic changes were demanded here some weeks ago to tackle market abuse and reduce the temptation toward recklessness.

But constantly reaching for the break-up option will not achieve the desired ends. Miliband sees bigness as a competitive problem rather than one that provides a competitive edge.

There is no guarantee that by merely increasing the number of banks their behaviour and competitiveness will improve. It would, however, result in smaller banks with fewer resources, less nimble in their ability to lend and whose products would be more expensive.