Just because many banks have been around forever doesn't give them the right to exist. Let's ditch them, and get new banks insteadby Jonathan Ford / April 26, 2009 / Leave a comment
We want new banks.
Just one US industrial company, General Electric, has been in the Dow Jones index from its inception in 1896 to the present day. All the others (who now remembers the Distilling and Cattle Feeding Company or American Cotton Oil?) have either perished or been absorbed into other organisations in a healthy process of renewal. By contrast, banks seem to last forever.
Financial institutions have, of course, amalgamated over the past century, but rarely has a new entrant muscled its way on to the scene. In Britain, Barclays has its roots in the 17th century; Lloyds was founded in 1765. HSBC in this country is a thinly disguised Midland Bank, another Victorian colossus, while Royal Bank of Scotland dates from the Hanoverian dynasty.
This longevity has bred an unwarranted sense of entitlement. Large banks seem to believe that they have a right to exist because they have been around forever. This attitude was on view in the US recently, when bankers from Citigroup and Bank of America appeared on television to assure the public that they were going to pull through this recession because the government was lending them money for nothing and they were passing it on at a much higher rate of interest. No one should worry, the bosses chortled, as they were making billions of dollars in profit. The Brits have shown a similar want of awareness. Who can forget that unsavoury blob Victor Blank, chairman of Lloyds, gloating over the Lloyds-HBOS merger largely, presumably, because its anti-competitive nature would allow him to raise his prices?
It is time to prick this delusion. There’s no good reason for us to care two hoots whether Lloyds or Bank of America come through this recession. Of course we don’t want them to collapse chaotically, taking our savings with them. But that shouldn’t happen now that the taxpayer is standing behind the depositors. Just as the Distilling and Cattle Feeding Company was eclipsed when other more vital companies supplanted it, surely our old banks should face a similar fate if they are too full of toxic assets to do their job effectively. After all, it is only the lack of competition that is forcing us to restore their finances.
What we need now is new banks with sound balance sheets that aren’t constrained by the errors of the past and can lend to us at reasonable…