On the move: Will the LIBOR scandal change where you bank?

6th July 2012

Customers are notoriously slow to change their bank accounts. A piece in yesterdays Guardian by Zoe Williams suggests that this might be changing. She writes that the recent scandal has finally prompted her to change her account, though admits it has taken her 20 years.  

Her piece quotes Bruce Davis, who co-founded Zopa: "It is the people who have the power to change banks, not the politicians and certainly not the regulators. It's more than a consumer choice, it is a democratic one. It is about moving the power of money away from those who take it for granted."

Williams also quotes figures from the Building Societies Association, showing Nationwide had reported an 85% week-on-week rise in its online applications for new accounts while the Co-op had a 25% increase: "The Ecology Building Society said visits to its website were up 50% on Monday compared to a week ago and visits to the site over the past week were up 266% compared to the same week last year."

The views found resonance on the comment boards. Agent 80 said: "There is nothing a bank can do that other places (like building societies) can't do better. Other than the jobs they provide for the poor sods who work in them, 'The Big 4' provide absolutely no benefits to normal people whatsoever and should be driven off the High Street as soon as possible."

There are now whole organisations dedicated to encouraging people not to bank with the large banks. For example, and its US equivalent aim to support ‘mutually owned, community-focused or ethically minded banks'. It adds: "Any money you do move will help to support the alternative banking sector and send a message to the "big 5" that you are not happy with the way that they use your money." It points to high fees, a more personal service and better deals for small businesses.

Martin Lewis doesn't factor in the moral element when comparing bank accounts, but does give some indication of how easy it is to change accounts. The discussion boards also provide useful real life experiences of switching.

Barclays has been here before. In February, there were customer protests over executive bonuses: "Leomi Potter, a 25-year-old supply teacher in London, said she would ditch the bank tomorrow as part of the "Move Your Money" campaign…Branches in London, Oxford, Leeds and Sheffield will be targeted as part of the campaign to "change the culture of banking".

There was even a whole Facebook page dedicated to the protests.

However, it is unlikely to bring down Barclays in a stroke. Corporate clients will need to take similar action and this is unlikely to happen quickly. In his book ‘Liar's Poker' Michael Lewis chronicles poor practice in investment banking. As his says in this interview – – he thought that once the abuses were made clear, corporate clients would stop doing business with investment banks, but that has not happened. "When I wrote Liar's Poker [published in 1989] I thought it was about a period that was coming to an end."

Equally, there are those who will choose to maintain their banking relationships for other reasons. CheshireSalt: "People are able to separate the morals, attitudes and general helpfulness of the clerks they see in their local bank branch from those of people six pay grades above them. That is why they tend to stick with the people they know. It maybe also explains why on-line purely banking has not taken off quite as predicted."

At the margin, customers are looking for alternatives, but not in sufficient numbers to break the robust profit lines of the major banks. If corporate customers finally tire of being duped, there may be a real challenge to the business model of big banking. 

 

More on Mindful Money

Should investors give up on the UK?

Bob Diamond – The King is dead

POLL: Who should be Barclay's next CEO?

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The Financialist

25 thoughts on “On the move: Will the LIBOR scandal change where you bank?”

  1. Justathought says:

    Hi Shaun,

    I wonder what our failing banking central elites will say when the pound crisis will hit… (It seems we might heading for one and sooner that one can expect, or maybe that what they are after…)

    1. forbin says:

      “it wasn;t me” by shaggy

      Forbin

  2. Anonymous says:

    Does the man on the street really have inflation expectations? People I know look back at price rises and extrapolate from there, at best. At worst they just notice they have less money as things get more expensive and are forced to cut back.

    Your blog contrasts with FTAV today Shaun. There we are told the UK is back in the race: http://ftalphaville.ft.com/2013/03/05/1410062/a-triple-dip-avoided/

    Can’t say I’m convinced. I bet they do more QE this week also…

    1. Drf says:

      Yea Patrick, I think you are right with your prediction concerning QE. After all you just have to remember the real reason for QE, rather than paying any attention at all to the fatuous and erroneous “to stimulate the economy” one!

      1. forbin says:

        and here is the latest Financial Football results

        banks 2

        people 0

        from talking heads – once in a life time

        “same as it ever was ,same as it ever was”

        Forbin

    2. Anonymous says:

      Hi progrock and welcome to my part of the blogosphere.
      Thanks for the FT link although they are really only giving us today’s (better) data, but perhaps they think so too as they used to quote me but no longer do! As for the MPC you could easily be correct as I expect that vote will be tight and it will only take 2 to switch. However I feel that they might wait before pressing the button. So it is only timing as I have been expecting more QE eventually. But I know from trading experience that the saying the best laid plans of mice and men can be apt and I might be being too clever by half…

  3. Patrick says:

    Who is/are the Shadow MPC? They’re different from the League of Shadows… right?

    1. Anonymous says:

      Hi Patrick
      They are organised if that is the right word by the Institute of Economic Affairs. As far as I know they have no such affiliations and nor are they linked to the Shadows who popped up in Banylon 5.

  4. Anonymous says:

    It seems to me that when the UK was a ‘global power’, there were always men in sheds inventing all sorts of interesting things, matched at the large end by engineering innovators running ground breaking projects. These ideas and expertise were exported all over the world, creating wealth for the nation.

    We now have a situation where men in Ivory Sponges (definition – Ivory Towers that soak up huge amounts of money and ideas) are spending time figuring out how to bolster the Tower against reality, to enable it to suck in more resource. Exportable ideas yes as there are a number of Ivory Towers around the world, but non productive. On a smaller scale people are beavering away figuring out new financial innovations to protect against the Towers predatory actions. Again, non productive. So now we have systemic wealth destruction?

    Worrying as you cant beat the Tower, even though the Tower cant do without you……

    1. Patrick says:

      Have a read of this article for examples of how they’re looking to bolster their tower’s defences…

      http://www.guardian.co.uk/commentisfree/2013/mar/04/education-capitalist-command-economy

    2. DaveS says:

      Engineers/scientists create wealth – economists destroy it.

  5. Anonymous says:

    Shaun,
    £ devalues and allows customer gouging by all utilities as no competition and they can blame higher import prices. Knock on effect for all energy users and therefore prices including exports need to increase. Any “benefits” of devaluation immediately lost.

    Coupled with negative growth in wages I am surprised things are not worse – still the banks are still taking the largesse ( for your lexicon).

  6. MickC says:

    The moment interest rates rise many people now, barely surviving, will quite simply cease the struggle.
    The housing market, such as it is, will collapse-followed quickly thereafter by the economy.
    The reduction in interest rates has never been passed onto borrowers-but, by God, the rise will be.
    Naturally, once many borrowers just give up, the banks (already actually insolvent) will become technically and legally insolvent. The state will not be able to bail them out (and never should have in my view) and after that-well, thats anybodys guess.
    Incidentally, Osborne seems to think its a good idea to defend “Banker’s Bonuses”-it isn’t. It’s about as sensible as backing the Trade Unions was for some of the Labour party in the Winter of Discontent-and an excellent way to make the EU more relevant than the UK government.
    What planet is this shambles of a government from? Answers on a postcard….

    1. forbin says:

      for you stated reasons there will not be any interest rate rise soon.

      We are run by the banks for the banks

      as for limiting bonuses – hah! I’ll be the next pope if it ever gets anywhere done!! ( loop holes are expected ! )

      Forbin

    2. Anonymous says:

      Hi MickC

      Before all this began there was talk that any interest rate rise of any significance would cause a catastrophe. Then they meant from 5% to 6%.
      Now we get the argument that say from 0.5% to 1.5% would be. What next we cant raise from -2% to -1%? We are in danger of getting ourselves trapped I think and we need like someone in a maze to start to find our way out.

  7. Rods says:

    Hi Shaun,

    Most of the energy companies have invested heavily in their own gas supply fields. When you look at their accounts they like to quote things like they only make 92p per customer per week etc, etc. But that is for the retail part, when you look at the price they sell the gas to their retail division, the then the supply part profits are eye watering, because of course they value it a spot market prices.

    Unfortunately the US doesn’t currently have the facilities to produce LPG for exporting, which is a major reason the gas price is so low in the US. Apparently facilities are being built.

    Where other European countries have extensive storage facilities so they can purchase their winter gas at summer prices and store it, we have very limited storage capacity. Some European countries also have long term supply contracts and get their gas at better prices than the spot market.

    Once the coal fired power stations have closed, the UK’s spare generating capacity will drop from 14% to less than 5% and it doesn’t matter how many more useless bird slaughtering windmills they blight the landscape with, because of course they need base load backup for when there is no wind or the wrong sort of wind where it is too strong! An Australian study has shown that as you add more windmills, so grid stability gets worse and the more base load power stations you have inefficiently idling which produces more CO2 than the windmills save! Grid instability is why the Germans are now rushing the construction of 12 coal fired power stations to replace their nuclear ones. Ironically, coal fired power stations emit much more nuclear particles from coal into the environment than nuclear power stations would ever be allowed too. You really could make it up when it comes to so many things done for eco/green reasons and their unintended consequences!

    From what I can see like our water market, the electricity and gas markets are also rigged in the incumbents favour. Another Government regulation failure.

    I agree the BOE is failure, but I think the same also very much applies to the Treasury and the Chancellor. No effort has been made to rebalance the economy by cutting the public sector followed by tax cuts. I was looking at the UK’s velocity of money at the weekend which has been on a downward trajectory since John Major turned on the public spending tap ad raised taxes before the 1997 election. In the last 12 months is has picked up very slightly, but to me this shows how moribund our economy has become since 1995 and is likely to stay with the chancellor’s BOE’s and Treasury’s current policies with no real spending and tax cuts and supply side reforms making no progress apart from being talked about!

    1. JW says:

      Hi Rods
      Agree with your comments on the energy sector. As I have previously posted its still ( not quite) too late to reverse some of the idiotic, half-baked lunacy that has passed as UK Energy Policy and Planning over the last 20 years or more.

      Coal plant should be reprieved, ignore EU directives. Quick build of gas storage to smooth seasonal costs. These two ‘initiatives’ would help to at least stabilise prices and supply. End the folly of ‘wind’ and ‘solar’ , the only renewables that make sense in the UK are old hydro and local ‘heat and power’ from incinerators. Fracking needs to be accelerated and nuclear needs state support ( its the only way it can work).

      Energy, especially electricity is the life-force of a modern state, its far too important to leave in the hands of idiotic, self-centered politicians.

      1. forbin says:

        seems I was late to post – well you guys have covered most of what I’d said .

        so its not just a financial crisis ahead – which would be bad enough – we have the “Energy Gap” as well.

        well just wait until the lights start going out !

        I think then the Green vote will vanish then – not that I’m unsympathetic with their view but they are not worldly wise .

        Add the fact our politico’s are utterly hopeless in understanding this issue or are too busy waiting for the “other side ” to fail ??

        oh well , get some candles as well as pop corn in!

        Forbin

      2. Anonymous says:

        Maybe the UK ought to inject some market reality into electricity purchase. With intelligent meters, should be possible to let consumers buy direct from generating companies. (either by a spot market or a preagreed price) Greenies can order wind power – either they buy batteries to store wind energy or watch the lights go out. Likewise let those who want solar power pay for it without public subsidy.

        This would also allow supporters of nuclear power to sign up long term contracts – if enough people signed up, then the utility has commercial grounds to build new power plants. Market forces can bring some surprisingly efficient results.

  8. Anonymous says:

    Shaun, from your many writings in the last couple of years, it’s pretty clear that the BoE is not entirely what it seems. Directed by the government to ensure inflation rises, while repeating ad nauseam that its focus is on keeping it very low, it stumbles from one complex pretence to another. In the end the people involved simply lose all credibility, and have to move on. Don’t you Mervyn. There is a maxim in politics which goes like this: If someone in power denies something consistently while all the evidence is to the contrary, and especially if that something is rather undesirable on the whole but favours the policies of the government, then it almost certainly is happening. Sir Humphrey knew a thing or two. I know this was happening during and probably before the time of Pepys and every generation has to figure it out for themselves. We give our politicians and officials too much benefit of the doubt. But this generation is finally learning… they are not working on our behalf.

    1. DaveS says:

      Exactly – thats why the tie themselves up in knots in their daft doublespeak speeches.

      Except I don’t think anybody will have to “move on”. Mervyn is retiring as planned. I think the BoE is doing exactly what the powers that be want – whether that be the government, the markets, the banks or the wealthy,

      Its not representing the interests of British citizens but then its not an elected body so it doesn’t give a damn about the citizens.

  9. Anonymous says:

    Hi Shaun,

    Is the question about accountability at the BoE & accountability for the rate setting committee ?

    G Brown announced that he was making the rate setting committee independent. This political move reduces accountability to voters and allows the chancellor to avoid responsibility for rate setting. In hindsight it looks like we’d be better having the chancellor responsible, at least we get a vote on renewing the chancellor’s position once every 5 years.

    1. Anonymous says:

      Hi ExpatInBG
      I entirely agree and think the same. To put it another way the independence lasted maybe ten years if I am being generous (The 2002/03 switch to CPI from RPI for example)., so capture didnt take that long did it?
      I got busy with the RPI campaign and other matters but its time to brush off my campaign for elections to the MPC again I think. Direct accountatbility is a route out of the current mess where it is an expensive but useless Quango.

  10. Noo 2 Economics says:

    Hi Shaun , You have clearly misunderstood Spencer Dale’s intention in stating his priority was “inflation, inflation inflation” – think about it in light of the evidence.

    I understand the “Good case for expansion” of which David Miles speaks – to inflate the Government/banks debt away of course.

    Of course you can always read their statements in the opposite way to the meaning most people interpret from their statements. This is because they are being careful to ensure that ambiguity so they can never be successfully accused of being “wrong” and we know what they really mean, but, to paraphrase Abraham Lincoln, as long as they can fool most of the people most of the time every ones happy!

  11. Gold Bug says:

    The Bank of England has not failed. If you believe the PR nonsense about what it’s job is then yes it has but if you realise that it’s actual job is to maintain the money go round between government and banks through a combination of low interest rates and money printing. That also keeps the public debt burden down whilst destroying people’s savings. In short it manages the destruction of the currency to keep the elite’s money machine going. By that measure it’s success has been enormous.

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