Monday morning saw the long-awaited release of the Independent Commission on Banking’s Final Report on reforming the UK banking sector following the financial crisis.
In the lead up to the release we were doing our best to make a lot of noise regarding the Commission’s recommendations on increasing competition in the sector.
This is because we consistently hear from our members that there isn’t any real competition in the UK when it comes to SME banking services.
Too often terms and conditions, rates on loans, service standards, and covenants in lending agreements are nearly identical between the major banks. While accepting some of the forces driving costs for banks will be the same, surely in a competitive market we would expect some variation.
Even more ridiculously we’ve heard stories of a major UK bank refusing to even quote business for a £20 million turnover, profitable company and another major bank deciding it doesn’t want to deal with our defence industry.
Now these may prove to be isolated cases – but even if they are, it’s hardly indicative of banks straining at the leash to provide great service to the real economy.
Our efforts at drawing attention to this culminated in our chief executive, Terry Scuoler, together with the heads of other major business organisations writing an open letter on 10 September urging the government to reform the competitive landscape in UK banking as a matter of urgency.
This is all the more relevant given the government’s increasing alarm at the global economic situation and the impact it may have on the UK’s growth.
Indeed the lobbying leading up to the publication of the ICB report focused a lot on the risks of implementing tough proposals on ringfencing at this moment, given the fragility of the economy.
The concern expressed was that tighter requirements on the banks would further constrain the banks’ ability to lend to businesses.
And the government (and perhaps the Commission) seemed to take these concerns seriously.
So it’s a little surprising in this context that more hasn’t been more made of the need to increase competition as a matter of urgency.
Action here is not about increasing costs for the banks and could provide short-to-medium term support for growth via downward pressure on the cost of accessing external finance.
Predictably perhaps, the press focus has been on the ringfencing side of the Commission’s recommendations. The cost to the banks. The comparison with other countries. Relatively few mentions of competition.
As for the government, so far we’ve had the Chancellor of the Exchequer welcome the recommendations on enhancing competition from the Commission and saying they are in the country’s interest. That’s good.
But as yet there’s no detailed response and no sense that this is a key concern and connected to the struggles SMEs in particular are having accessing the finance the need to grow on reasonable terms.
In a week where the Deputy Prime Minister has stood up and made the government’s concern on the country’s short-term growth prospects plain, it would seem to me that the time is now to be putting the foot down on competition-enhancing reforms in UK banking.