Refreshingly, there was an enlightened and interesting discussion last week when the Treasury Select Committee took evidence from two prominent women Chief Executives of UK banks. First from Jayne-Anne Gadhia the Chief Executive of Virgin Money and second from Ana Botin, the recently appointed Chief Executive of Santander UK. Both gave frank insights into their internal banking processes and it was one of the most constructive sessions yet in our Inquiry into Choice and Competition in banking.
I want to mention two specific areas that came up again during the session. First, the issue of enabling customers to take their bank account with them if they switch bank was raised as it has been in a number of previous sessions. It is a surprisingly controversial topic which I wrote about recently on ConHome.
Jayne was keen on the idea of current account portability. She said that providing each customer with the choice of having an individual bank account number easily capable of transfer between competing banks “should not be beyond the wit of man”. Like me she believes that choice increases competition – we can all now transfer our telephone numbers between properties and it should be possible to take our individual bank account numbers with us when we move banks, if we want to (choice, not compulsion). Jayne pointed out the sheer frustration experienced by many trying to switch bank accounts under the current system and having to sort out the mess caused by direct debits and standing orders gone astray.
I feel sure that more competition in the Personal Current Account (PCA) product would result in a much improved service for the customer and increased efficiency within the industry. If we were able to switch banks more readily we would be more inclined to shop around for the best deals and best current account terms.
Contrast Jayne’s views with those of Anthony Jenkins, Chief Executive of Global Retail at Barclays, who also accepted that it is possible to create a portable number for customers. He said that the technology exists to do this but the cost would be very significant and would be passed on to the customer. Jayne has no such qualms. She thinks that the status quo is unsupportable and that banks should be pleased to foot the bill out of retained profits in support of better customer service and improved competition. I agree with her. The problem of customer inertia in switching banks is, in my view, a big block to improving competition in the retail banking sector.
Jayne also raised the interesting proposal of “bank based capital” which the Committee has heard before from Vernon Hill the founder of Metro Bank. In a move described as “back to the future” she outlined an industry where each branch is responsible for its own capital base with a deposit base in each one. Every branch is then also responsible for its own risk management. She also pointed out that the legacy systems owned separately by each of the big banks stifles competition. Any new entrant has to rely on one of the Big Four to become their Agency clearing bank.
Secondly, the issue of how to deal with banks that are ‘too big to fail’ was raised and Ana Botin answered questions on subsidiarisation of global banks. The benefits of requiring banks to have separately capitalised subsidiaries in each geographic location will be one of the questions looked at in Sir John Vicker’s Independent Banking Commission.
A couple of weeks ago, Bob Diamond repeated Barclay’s view that the integrated banking model is the right model. To justify his view, he gave the example of the Barings’ operation in Singapore – he explained that Barings Singapore was a subsidiary, but that this did not prevent it from bringing down the whole Barings group. I pointed out to him that in fact Barings’ demise was precisely because the entire group’s treasury resources were ploughed into Singapore. Not an example of subsidiarisation at all, and I wonder why he chose an example that was clearly wrong.
Ana told us that Santander is run as a group of subsidiaries. She confirmed that Santander banks in the UK, Spain and Brazil are “stand alone subsidiaries” with separate capital for each. Each national subsidiary will succeed or fail on its own merit, a principle which was followed with Santander Argentina. Santander therefore operates a system of geographical subsidiarisation in contrast to the integrated universal banking model operated by and advocated as the right option for the future by Barclays. Like me she believes the way forward is not necessarily “biggest is best”. Banking reform necessitates a real hard look at the constituent components of every element of each bank’s global operations.
I appreciate that each Bank Chief Executive has a corner to fight, a market share to protect or enhance and a different experience of the global market. However it is undoubtedly the case that a frank and honest dialogue a more competitive global banking industry and greater choice for the customer is a very valuable thing. I pay tribute to those two impressive CEOs who lead the way in meaningful discussion. You might not agree with them, but at least you know where they stand.