That title doesn’t make a lot of sense. It was mainly inspired by claims this week that implementing proposed reforms in the banking sector right now would be ‘barking mad’.
The argument goes that this is because the delicate stage of the recovery means we should be doing all we can to assist companies getting the finance they need.
Proposals coming out of the Independent Commission on Banking that call for ring-fencing banks’ high street operations from investment banking or call for increased capital requirements would threaten this flow of finance.
Ergo we should hold off on these reforms. At least for now.
Unfortunately, some important aspects of the reform debate don’t seem to be barking at all, not even whimpering in fact. A mention or two might help the situation.
Firstly, the flow of finance point. If getting finance to companies that need it is so important why has net lending basically been in continuous contraction since the financial crisis?
Surveys such as our own on credit conditions continue to show that the cost of finance is increasing, not decreasing, for a balance of companies.
And the bank-funded Business Finance Monitor in July showed that the phenomenon of discouraged demand, where companies don’t even ask for finance from their banks for fear of rejection of having their existing arrangements worsened is real – covering 15% of SMEs.
So despite the banks’ Business Finance Taskforce, which we applaud, are we really doing everything we could to improve access to finance now?
But the more important point, raised by John Thurso MP this morning on Radio 4, is the absence in the current debate of the other side of the ICB’s mandate – to provide recommendations for increasing competition in the UK banking sector.
I suppose it’s fair enough that the banks or their lobby groups don’t draw attention to this side of things.
But surely a more competitive banking sector would be a lower cost one for the customer? Indeed if we are worried that ring-fencing or any other restructures designed to make the system safer would drive costs up, wouldn’t one possible response be to double down on reforms to increase competition?
I fear that competition reform is the poorer cousin in this banking debate to the ring-fencing proposal. The ICB’s recommendations haven’t for example even received the tacit support the government gave to ring-fencing earlier in the year.
And yet companies around the country tell us that despite all the possibilities for competition in banking – rates, fees, conditions, covenants, even service – the main high street banks are near uniform in the offers they make to firms.
We need a barking dog or rather more barking dogs than just ourselves (we’ve banged on about this for a while). We need competition-enhancing reforms with the potential to improve access to finance for companies in the UK and this needs to be part of the debate on reforming the banking sector.