The Guardian is normally a Labour friendly newspaper, but its initial assessment of Ed Miliband's big speech on the need for more competition in the banking sector is rather damning: "Too crude. Too costly. Too time consuming."
I used to be a customer of Lloyds TSB, the bulk of whose customers were transferred to the new TSB Bank last year - me included, but I can't say the service is any better.
In fact, it's worse and I only sorted out a recent dispute with my new bank by registering a complaint with the Financial Ombudsman Service - thank God for an independent regulator.
More competition in banking depends upon a more feasible plan
Ed Miliband has picked a reasonable fight with big bank bosses, but his suggested structure leaves much to be desired
Ed Miliband’s desired structure – two new challenger banks created via divestments of branches by the current big banks – looks unworkable. Photograph: Ray Tang/Rex
Too crude. Too costly. Too time consuming. Ed Miliband should prepare for more attacks along these lines. Executives at big banks simply hate the idea that they should be made to unload parts of their organisations.
Some of the objections carry weight. Royal Bank of Scotland, which was ordered by the European Union to sell branches in return for getting its 2008 government bailout approved, says it has spent £1bn and four years separating the 314 branches that will soon carry the Williams & Glyn's badge. That's a chunky bill and the money could have been lent rather than spent on IT consultants.
The charge of arbitrary interventionism, levelled against the imposition of a cap on market share, is also serious. The bankers argue that an institution that gets close to the maximum might be inclined to pedal softly and shed its least profitable customers when it approaches the line. If the market leader is relaxing, others might too.
But these objections are far from being knockouts. Take a cold look at the state of UK banking and two factors stand out as plainly problematic. First, Lloyds TSB's takeover of HBOS in 2008 should never have been allowed.
The chairman of RBS, Sir Philip Hampton, is hardly disinterested but he was spot-on when he said this week that a strange thing happened with the creation of Lloyds.
Lloyds will hold 25% of current accounts in the UK even after it has demerged 630 branches now operating under the TSB banner (the result of another EU demand). In an average year, it would also expect to write one in every four mortgages in the UK. In retail banking, Lloyds stands head and shoulders above the competition.
We know, of course, why the Lloyds/HBOS deal was allowed. It was born from the chaos of Lehman Brothers' bankruptcy in September 2008. The Labour government decided any prop under the UK banking system would do. A competition waiver was granted (the EU demand came later) and Lloyds executives greedily seized the chance for one last mega deal. Their attempts to buy Abbey National in 2001 had failed a public-interest test and an invitation to swallow HBOS would never come again.
Their bet was a bad one, as it turned out, since HBOS was in a far worse state than they thought. But the impact on competition remains. Today's Lloyds bosses – absurdly – describe its Halifax business as a challenger brand. Pull the other one. If Halifax ever became properly challenging for the Lloyds brand, the group board would be free to turn down the dial.
Liberating Halifax (with or without Bank of Scotland) from Lloyds would be the single easiest step to boost competition in the retail market. It is not a radical idea. Even in 2008, many commentators warned the ripping up the competition rule book was a grave error by Gordon Brown's government.
But, if the retail banking looks too cosy, look at affairs in the market for lending to small- and medium-sized enterprises (SMEs). Three banks – RBS, Lloyds and Barclays – will account for about 65% of volumes even after the 315 Williams & Glyn's branches have slipped out of RBS. That is a national average. In some regions, the figure could be as high as 80%.
The effects of such concentration can be insidious. Some small businesses complain that if they turned down by one big bank they don't get a look-in at a rival down the high street. And recall last year's damning comments of Sir Andrew Large after his independent review of RBS' lending practices: "The bank has failed to meet its own SME lending targets, partly because they were unrealistic and also because of weaknesses in its lending operations."
Would those weaknesses have been addressed earlier if RBS had been chased by a larger, and hungrier, pack of lenders to SMEs? It wasn't Sir Andrew's job to address the question but the suggestion seems fair.
Miliband, then, has picked a reasonable fight. His tactics, though, are highly questionable. Normal practice is to order a full competition inquiry and await recommendations. Instead, he seems to want the Competition and Markets Authority to produce, in six months, a plan to meet a predetermined outcome. Isn't the CMA meant to make its own judgments? In any case, a competition inquiry is already slated for 2015, in line with the recommendations of Independent Commission on Banking in 2011.
And Miliband's desired structure – two new challenger banks created via divestments of branches by the current big boys – looks a dog's dinner. How is this process meant to work?
Would Lloyds, Barclays, et al throw several hundred branches, in proportion to their current market shares, into a pool from which the two new banks would be formed? Would brands have to be created from scratch? What credit rating – vital to competitive clout – could these new entities attract? And does Miliband have no view on who the owners of these new banks should be?
The Labour leader is also open to the charge that the smartest, and quickest, way to boost competition is to reform the payments system and thus give a leg-up to new entrants. The payments system is currently owned by the big brigade who charge access fees to smaller players. An independently -owned payments system – a sort of national grid for banking – might encourage more newcomers to risk their capital.
Sir Don Cruikshank, in his report on banking (almost entirely ignored by the Labour government of the day), was making the argument for a utility-like payments system back in 1999.
In short, Miliband is right to shout about the need for more competition in banking. The post-crisis pace of reform has been glacial and high pay and big bonuses at the top of the industry are, in part, the fruits of economic rents. But has Labour produced a workable plan? Not in its current form.