Breaking up banks would benefit business

The future of banking in England is up for debate.  The argument is basically about whether big banks, specifically Lloyds Bank and Royal Bank of Scotland, should be broken down, split up, and otherwise divested of the virtual monopoly they hold on the bank accounts and therefore the purse strings of most British citizens and businesses.

In a recent article for The Financial Times, the former Financial Services Secretary for Gordon Brown, Paul Myners, came out in favour of splitting one or both of the two biggest banking institutions.  His opinion is that a greater number of smaller banks, focused on the needs of small and medium business owners, would mean more competition between banks, resulting in better service to customers overall.  Representatives of Lloyds and RBS have disagreed with his assessment, saying that the competition is quite adequate and their service is better than most other European banks.

Mr. Myners talked about the possibility of undoing some of the acquisitions and mergers that took place during the banking crisis, as in the merger that resulted in the British government owning 43.4 percent of Lloyds as of 2009.  Myners was a major proponent of nationalization when he worked with Prime Minister Brown’s administration.

Critics have noted that this ‘undoing’ may end up costing the taxpayers more than the potential benefits would be worth.  The basis of the arguments for and against breaking up the big banks seems to be a question of whether smaller banks would offer more and better services, at better rates, due to diversity and the pressure of competition.  Myners says that allowing a handful of powerful banks to dominate the financial market is dangerous; if a big institution fails, the whole country suffers.  The big banks argue that their large scale of operations means better service to customers.

The government’s Commission on Banking is currently investigating the situation, and will be making its report sometime in 2011.