The departure of RBS chief Stephen Hester is not the beginning of the end of Britain’s banking reconstruction – but it is the end of the beginning. The news begins a seven-day period that will see the UK’s Parliamentary banking standards commission publish its report (expected any day) and the initial response to it by George Osborne, chancellor of the exchequer, at the City’s showpiece Mansion House dinner next Wednesday.
By the middle of next week we shall therefore have a clear idea of the likely direction, timing and principles on which the UK banking industry will be reconstructed.
The sudden announcement that Mr Hester will be leaving by the mutual agreement of the RBS board, the Treasury and the man himself gives us some clues. The new chief executive will need to be in it for the long haul. We can assume that disposal of the state’s stakes in RBS will begin before the election in 2015, but, will not be concluded until after it.
With a share disposal in the offing, we can also assume that the chancellor will not be endorsing any radical structural proposals that the parliamentary commission might come up with. RBS is unlikely to be broken up. Ring fences might be electric but they will not electrocute. If the commission is politically savvy, proposals on capital, bonuses and banking standards will be stern but not so severe as to derail the politically and fiscally important work of privatisation.
What is likely to emerge from this will be a cleaner, safer, less highly charged version of the industry that brought Britain’s economy to its knees. But if this is indeed the outcome, it would be a missed opportunity to introduce more competition into the UK’s retail banking landscape – a landscape that is in real need of change.
Customer satisfaction with retail banking is below that seen in other industries. Real competition of the kind that can transform customer service is lacking in an industry that instead is characterised by cosy rivalry, a cosiness underlined by news that the leading banks are discussing an industry-wide task force to respond to the commission’s proposals. Remarkably, given the amount of taxpayer support they have received, the market share of the leading banks in the UK is greater at the end of the crisis than it was at its beginning.
This situation needs addressing and the government appears to be about to miss a unique opportunity to do so. The state’s formidable array of banking interests – in addition to its stakes in RBS and Lloyds Banking Group this includes National Savings & Investment (NS&I) and the Post Office – gives government the means to be the guiding hand in reshaping competition.
By imaginative use of its RBS and Lloyds stakes to seed challenger banks and promote a regional strategy, by supporting the Co-operative Bank or any other mutual in need of transitional help, and by developing banking brands at NS&I and the Post Office, the government could shake up a sector that has proved resistant to conventional market forces. Such an interventionist approach would probably make the free-marketeers wince – but when it came to banking, that bridge was crossed long ago.