Monday, 13 February 2017
Eight years of banking pain and still no end in sight
Co-Op bank has put itself up for sale today. Ouch, even after a big bailout from new shareholders, there seems to be no way for it to actually turn a profit on its customer base. Frankly with low interest rates and non-banks piling into the market, there is not much to be said for retail banking. They never did get there way on charging for current accounts...
Add this to RBS, being denounced in the press for being about to launch another mass redundancy round to try and cope with its 9th annual multi-billion loss. Again, similar to Co-Op, it can't make money from its business - certainly only a couple of billion from what it has left after shutting down investment and international banking. This two billion is dwarfed every year by payouts for the sins of the past misdemeanours.
2007/8 feels like a long time ago, but many of the problems in the banking system are still working through. The medicine of Quantitative Easing, which was hard to argue against at the time, has persisted long past its use by date. The Bank of England has always found a reason to keep the taps on to help the economy.
However, the underlying system is now very screwed by this approach. With no interest rate differential in the markets, banks struggle to make money. The regulatory burden, necessarily increased after the great crash, is expensive. Instead of the Banks making good, new entrants, with lower costs have come to the market and started to feast. This is good capitalism and as it should be, but will make for a big taxpayer write-off on the RBS investment.
Perhaps we should just do it and move on, rather like Co-Op group did with Co-Op bank.