The pressure is growing for a real bank break-up

 By 0olong

It has taken a very long time, but at last the establishment seems to be using the b-word about the UK banking oligarchy.

Yes, in order to provide the UK economy with the support it needs, we need to break up the big banks.

That is what Terry Smith, chief executive of Tullett Prebon, told the Worshipful Company of World Traders last week, also urging bonus reforms.

But even more significant, it is what John Fingleton, head of the Office of Fair Trading (OFT) told a Lloyd’s Banking Group seminar yesterday.

Fingleton says he will decide whether to refer the banks to the Competition Commission within months.  For him to do that, and put the banking sector at risk of a fundamental break-up, two criteria have to be fulfilled:

1. The banking market is “preventing, restricting or distorting” competition. Compare our highly centralised and dysfunctional banking to those on continental Europe and the USA and you can see why this is the case. 
2. The industry is unlikely to correct its behaviour without intervention. The failure of Project Merlin on small business lending suggests otherwise.

nef has had their differences with the OFT over the years, but Fingleton is absolutely right this time and is doing precisely the job that he should be doing.

It seems unlikely, now that both the big state-owned banks are wallowing in unrepayable debt – zombie banks if ever there were any – that the sale of RBS will be achieved within the lifetime of this Parliament.

It is the duty of the Treasury to work out whether it would be more sensible or profitable for the taxpayer to break RBS up into a series of effective local banks, either before selling off or before mutualisation.

Each option would provide us with working local banks, capable of underpinning the recovery of local economies and building an effective entrepreneurial culture, which would be a good deal more useful than the white elephants we reluctantly own at present.