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Monday, 11 June 2012

Why Flog A Dead Bank?

I'm currently drafting some amendments to the Financial Services Bill designed to encourage the growth of non-bank, alternative financial services. However, I've declined the opportunity to help with banking reform.

Now don't get me wrong. I've been very public in pointing out that retail banks are failing to enable the cost efficient flow of surplus funds from ordinary savers and investors to creditworthy people and businesses who need finance. But that's not to say I wish to spend any time discussing the reform of retail banking.

I prefer encouraging the growth of alternative financial services to flogging a dead horse. 

Banks have proved themselves to be too capital intensive and too expensive to manage and operate for them to be worthy repositories of consumers' surplus cash. They also have a proud history of being fined. Indeed, recent analysis by the Financial Times has demonstrated (lest you were in any doubt) that banks exist primarily to solve their own remuneration challenges at the expense of their customers and shareholders. 

That's why I prefer encouraging the growth of alternative financial services.

Banks might have a role to play in the infrastructure of future retail financial services. Providing segregated account services for peer-to-peer finance platforms, for instance, or enabling retail payments.  But that shouldn't mean banks get to treat the money in those accounts as part of their own assets, any more than peer-to-peer finance platforms or payment instutions can. Such funds should remain safeguarded even in the banks' hands, especially when the consumers and small businesses involved in those scenarios are not intentionally investing their money with a bank in the first place. But that's not so much a matter of banking reform, as ensuring banks play according to the same rules as everyone else in the growing array of markets for non-banking services.


Image from Worth1000.