Time to shake up banking in the UK

The news that the Co-operative bank could be in serious trouble is just the latest indication that the banking model in the UK needs to be shaken up.

Most of the major UK banks needed state support during the financial crisis and the need to separate wholesale or commercial banking from the retail arm has been strongly suggested.
New players in the UK banking sector such as Metrobank and Virgin Money have been set up to provide an alternative to the established banks and are finding a gap in the market.

Metro Bank was Britain’s first new High Street bank in over 100 years.  They have stores rather than branches. They say that they offer banking focused on the customer through unparalleled levels of service and convenience.  They have what they believe is a unique, customer-focused retail business and are reinventing the rules of retail banking, making every effort to remove all stupid bank rules from their day to day services to offer simpler and more convenient banking to their customers.  

They aim to "exceed the expectations of our customers every day by providing a traditional face to face service in all of our stores with no requirement to book an appointment to discuss your banking needs and card and cheque printers so that you can walk away with everything you need to start using your account immediately".

Virgin Money aims to make everyone better off. Like all Virgin companies, Virgin Money was launched to give customers a better deal. Customers of Virgin Money are presented with lounges that are intended to be about more than money and banking. They are intended to be places where customers can relax and where local communities can come together. Virgin Money's aim is to offer " a wide range of great value financial products that are easy to understand and sort out. In today's busy world our customers tell us it's why they choose to deal with Virgin rather than anyone else."

Like Virgin Money, M&S Bank aims to offer a new style of banking, putting the customer first and providing straightforward financial products with great customer service.

The rapid growth of this new breed of banks, shows how far the larger, multi-national banks have moved away from the needs and demands of retail banking.
Like other financial products, such as insurance, the consumer is confused by the complexity of what is being offered making it difficult to compare products and offerings for even the most financially astute.

Without reverting to a barter system, money remains the oil of the machine that is the economy. Imperfections and complexities in the banking system make the smooth running of the economy more problematic regardless of whether you view this from a capitalist, free market or socialist, state intervention perspective.

The core banking system needs to run smoothly. The UK and other countries are trying to use quantitative easing to promote growth because interest rates have already hit rock bottom. However, the banks are now using this extra money to restore there own strength and are lending on a cautious risk averse basis. Some would say too cautiously.

Should this process be in the hands of the corporations driven by profit motives? If the market is operating properly, new players will enter the market to restrict the ability of the existing banks to manipulate the market and make super profits. To a degree as highlighted above this is happening albeit rather slowly.

The problem remains that the complexity of the current banking system makes it difficult for people to understand and obtain or even know what they actually want.

State intervention is required to ensure that the regulators are meeting the needs of the consumer in this market place. The recent financial crisis suggests that the market itself can not work quickly enough to control banking and the regulators across the world have been lagging dangerously behind.

Unfortunately the current trend in regulation is to gain the necessary expertise by utilising the specialist knowledge within the major entities that participate in the sector. This is a dangerous conflict of interest that is repeated in many sectors. To a degree this is inevitable in a world that is ever more complex.

The Bank of England as the UK central bank needs to take a more active role in the market place to work with the regulator to control the excesses of the banks within the UK banking system and to enable the monetary policy to be more effective as a stimulus for the economy.

There must be a clear distinction between retail banking, which needs to be run with a greater degree of social responsibility to protect the individuals forced to use the banking system on a day to day basis and the voracious appetite of the banks to take risks chasing ever increasing profits.

If this is not achievable, then is it time to look at alternatives such as barter systems?