Every year the Chancellor delivers his Mansion House speech – the topic, the state of the British economy. It might sound heavy but bear with me as this year’s could offer some light relief from our financial worries.
Today’s Banking Reform White Paper outlined plans to ring-fence retail banking and improve protection for your savings. What does it mean for us?
We might think that these technical proposals have a limited benefit for our day-to-day banking but, irresponsible risk-taking meant that the government bailed-out the banks to the tune of £2,000 for each man, woman and child in the UK.
Just think, the interest bill alone on this bail-out is £5 billion a year – if we weren’t paying this then we could afford to cut over 11p off a litre of petrol and diesel.
The ring-fencing of retail banking services will help protect the banks from instability. Rather than banks keeping all their cash in one pile, the money we share with the banks – in our current accounts, depositing cheques etc – should be separated from their risky investment banking arms.
Increased banking costs?
No doubt, we will hear scaremongering that the reforms will increase costs for us as bank customers. But this is simply not true.
The UK retail banks were profitable throughout the financial crisis and the services which we use on a day-to-day basis will be provided within the ring-fence.
The full proposals will not be implemented until 2019 so it will be some time before we see the benefits. In the meantime it’s important we do not allow the vested interests in the banking sector to delay the proposed reforms.
New banks to shake up the big banks
It is important that steps are taken to break the dominant position of the largest high-street banks and ensure they compete for our custom by offering better service and value. We’re already seeing M&S hitting the high street (although they will still be part of a larger banking group – HSBC) but we need more new entrants.
Protection for savers’ deposits will also be increased – meaning that you will be at the front rather than at the back of queue to get your money back if a bank goes bust. We want the Chancellor to deliver a simple and clear deposit protection scheme with a limit of £85,000 for each banking brand. You shouldn’t need to investigate the corporate structure of your bank to find out if your money is protected.
Do the Chancellor’s plans offer you some hope or are you doubtful they’ll make a difference? Will you feel happier that your money is safe in the knowledge that it has been separated from the money they choose to risk in investment banking?