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UK banking reform hits the wrong target

Proposals from the Competition and Markets Authority to empower customers to switch banks are an inadequate response to the wrong problem according to Christine Berry at the New Economics Foundation:

“They’re calling for customers to receive more information about their accounts and alerts when they’re nearly overdrawn, as well as more regular updates that switching is an option and a price comparison website to help them decide.

“But with the market dominated by a small number of giant banks who all behave in similar ways, and with trust at rock bottom following wave after wave of scandals, it’s hardly surprising that customers don’t feel motivated to switch.”

Berry notes that a system based upon a handful of massive banks all engaged in the same business practices leaves the UK economy at risk to the kind of shocks that we experienced in 2008.  Encouraging customers to switch banks does nothing to change this.  Rather, we need structural reform involving breaking up the banks.  Berry suggests that instead of selling off state-owned banks like RBS, we could break them up into hundreds of small local banks that serve their respective communities.

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