George Osborne has officially branded 2013 ‘the year of change in our banking system’ in his speech launching the Banking Reform Bill. But do the reforms really go far enough?
As finance campaigner for Which?, this morning’s speech gave me hope. It made me think that those who have been charged with making the important decisions on how to tackle the banking crisis might actually be listening to the consumer.
I’m under no illusions that there’s a big difference between rhetoric and actions. But it’s warming to hear the Chancellor talking of reforms to ensure that ‘banks work for their customers’ – one of the key asks of our Big Change campaign.
Changing banks for the better
The Banking Reform Bill has been introduced to Parliament this afternoon and, at its heart, seeks to change the very structure of banking groups. As a result, it should reduce the likelihood of banks ever needing huge government bailouts (funded by taxpayers’ money) to rescue them if they fail.
The Bill hopes to do this by introducing a ‘ring-fence’ to separate retail banking arms for their riskier investment arms. This prevents capital in the retail sector being used to fund activities in the investment arm. We should see a separate board of directors overseeing the investment arm, with only certain every-day banking activities being permitted within the ring-fence.
The Bill also outlines who’ll be responsible for maintaining the fence, and who’ll have the power to break banks apart entirely if they try to find ways around the ring-fence.
There are other proposals that should be welcomed too. For example, the introduction of a faster seven-day bank account switching service will help consumers switch to better banks and promote competition. But we would rather the government goes further and investigates the introduction of portable account numbers, which would make switching banks as easy as changing mobile phone provider.
What about bank sales culture?
However, the legislation is still missing a plan to tackle the sales driven culture that’s been responsible for the continuing banking crisis. We hope that the Chancellor’s call for professional standards in banking leads to meaningful action.
As it stands, it appears to be a good first draft. But I fear that if the government truly wants to turn public anger into trust again, the reforms need to be even better.