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End ‘rip-off culture’ in banks says Vince Cable

Business Secretary speaks at Which? event
Business Secretary Vince Cable

Business Secretary Vince Cable argued in favour of separating retail banks from their investment arms, as opposed to ring-fencing their assets.

The UK’s banking system is structurally flawed and has failed its customers, according to Vince Cable, the Secretary of State for Business, Innovation and Skills.

Speaking at the Which? Banking Reform debate in London today, Mr Cable stated the risks that banks had taken on in the past, which exceed the UK’s entire gross domestic product, were ‘unacceptable.’ 

An end to ‘casino’ banking

On plans to ringfence the retail operations of banks (the parts that look after customer deposits and lending) from the riskier proprietary banking – which Mr Cable referred to as ‘casino’ banking – the Secretary of State is in favour of separation. 

‘My own instincts lie with the full separation of retail and proprietary banking,’ he said. ‘If banks know they are too big to fail, they take excessive risks and this is not sustainable. Taxpayers should no longer have to bail out banks if they hit financial difficulties.’ 

Also speaking at the event was Which? chief executive Peter Vicary-Smith, chairman of Hermes Asset Management David Pitt-Watson and Paul Chisnall from the British Bankers Association (BBA). 

Mr Vicary-Smith said: ‘If ringfencing can be made to work, it will be easier to get people to agree to than structural separation.’ 

Culture change

David Pitt-Watson stated that two years and a half years after the previous financial crisis, there has still not been enough done to prevent another one. He said that there was still a huge issue with the culture of banks. 

Mr Cable agreed, stating that the coalition government had already acted to tighten controls on bonus incentives in banks. He said: ‘There is still public anger over bonuses and banks and regulators need to create a structure where bonuses aren’t underpinned by taxpayer.’

Promoting competition

On the subject of bringing greater competition into the banking sector, Peter Vicary-Smith stated that: ‘Consumer confidence and demand go hand in hand, and so it’s unsurprising that growth is stalling with people alarmed by rising food and energy costs and the ongoing uncertainty over the economy.

‘Which? has long argued for effective competition in banking, where banks have to genuinely compete for business by offering great value products and customer service.’

Mr Cable agreed, stating that increased competition ‘is the best antidote to the rip-off culture that’s ingrained in the banks.’

In order to achieve this, Mr Vicary-Smith said that: ‘The Independent Commission on Banking must be brave in it’s recommendations to the Government, and the Government must be brave in implementing them.’

Have your say

Read Vince Cable’s exclusive blogpost and have your say on banking reform on the Which? Conversation. 

You can also see how the Banking Reform debate unfolded in our  live Twitter coverage of the event

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