Money Blog: Is a Better System of Banking on Its Way?
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Home » Money Blog » Recession Watch » Is a Better System of Banking on Its Way?
Is a Better System of Banking on Its Way?
By Nic Cicutti
Oct 13, 09:51 AM
Today’s announcement that the Government is to inject £37bn of liquidity funding into Britain’s banks brings to an end – once and quite possibly for all – the era of free and easy lending. But with the Government set to become a major stakeholder in many of our high street banks, what kind of banking system are we set to experience in future? Perhaps it’s will be a fairer system that works better for consumers – if we learn some lessons from the past…
In the mid-to-late 1970s, almost fresh out of school, I started working for the NHS. I was required to get to work by 6am but public transport did not start that early in the morning. I therefore needed my own transport – and to get that, I applied for a personal loan.
So I made an appointment with my bank and, on the day, I dressed up in my suit and tie, went and sat in front of a manager and nervously asked him for £450 to buy my first scooter.
But before I walked out with the money, I was forced to endure a detailed grilling about what I planned to do with it and listen to a lecture on how, following my “disappointing” habit of going overdrawn far too regularly up to now, I really had to control my spending more carefully.
There will be many older readers of this blog who will remember similar experiences with their bank managers throughout the 1970s and early 1980s. Probably even more important, although we did not realise it at the time, was the fact that this type of lending was the main source of business for our banks and building societies.
Forget all about credit default swaps, toxic debts and all the other bizarre financial engineering that generated such massive profits for the banks in the past few years – until the credit crash. Back then, the key to making money for banks and building societies was know your customer, understand the risks and lend prudently and carefully.
Why do I mention all this? For the simple reason that I think for the next few years we will be heading back to that type of approach to banking.
Today’s announcement that the Government is, in effect, taking over both Royal Bank of Scotland and a huge 40% stake in a soon-to-be merged Lloyds TSB/HBOS “superbank”, signals a return to the kind of banking arrangements which existed 30 or 40 years ago.
No, I don’t mean that everyone will be forced to wear a green round-collared Ben Sherman shirt, ultra-baggy fawn-coloured trousers with 26-inch bottoms and four-inch platform shoes when they apply for a loan.
Nor, sadly, will we ever go back to face-to-face meetings where spotty teenagers are quizzed at humiliating length on their decision to buy a modded-up Astra with wide body skirt, fat alloys and ear-shattering sound systems. Call centres and automatic credit rating systems are here to stay, if only on grounds of cost.
But today’s decision to take such a huge chunk of the UK’s high street banks into public ownership means that regardless of whether the government is able to break the credit logjam and “encourage” banks to lend to each other – and by extension us – the days of City whizzkids, Porsche 911s and £30,000 dinners with £5,000 bottles of wine are well and truly over.
Sure, there will always be a need for some form of more sophisticated financial dealings between banks and institutions worldwide. It would be naïve to imagine that it is possible for a world economic system to survive and prosper simply on the basis of bank accounts, car and business loans, mortgages and selling home insurance.
However, far more attention than has been the case for many years will be paid to the basic side of banking, the kind where you and I use a bank for our day-to-day transactions and pay (hopefully) a fair price to do so.
It can’t come a minute too soon. Now, where’s my pair of platforms?
User Comments
Busby SEO Test 6 November 2008, 06:10
that is good it will surely help, thanks for give such a informative subject
mehmood s al-memani 6 November 2008, 03:37
Go to www.credit-crunch.synthasite.com
I would reverse the nationalization of all banks by putting all the worlds bailout money into fourth banking window in my copyright idea.
Martin 4 November 2008, 15:06
Why is it I feel very un-easy with this? Can it be that past experience has taught me that these jack the lads will still carry on conning joe public in just the same way? I do not feel that anything will change other than the institutions will continue to milk the market in any and every way they can while bending the ears of our supposed protectors at every opportunity in order to benefit themselves. I am old enough to remember the reasons we all went over to being bank paid. Not to help joe public but to reduce the temptation of wages snatches, bank raids and most importantly, the lack of control over peoples finances on the part of government. It all added up to hard luck for the average person and greater amounts of taxation and banking institutions wandering around with a hand in our pockets. When you had your money in your grubby mit it was easy to see what you were spending and to manage your finances. If you didn’t have it you didn’t spend it. And if you did have it you thought hard about spending it… just in case. not so now adays. The young expect instant life in a box, everything has to be new, designer goods and expectations of having it all.
Jack Harris 13 October 2008, 13:36
Born in 1933, first job £1.50 a week cash, old money. First time using a bank 1957
because I was paid monthly £56.00 which was above average. Soon had to run across my bank manager to borrow £100.00, why did I want it could I afford to pay it back, it went on for half an hour and then you were not certain to get it, they were little gods. Businesses dealing with the bank also had to justify any loans they required, but in general people in those days did not go beyond their means and I still don’t. But credit cards and credit in general became so easy and with no bank managers to control it you have meltdown, it has been coming for years I could see it so why did the government not take action and even worse take off bank controls. I hope this crisis does cure the spend before you get it attitude and the shops that let you have the goods and pay in three years. madness.
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