A couple of Decembers ago I travelled from London to Newcastle on the first day of the new east coast main line rail (ECML) franchisee, National Express. I blogged about it at the time. I was amazed that all reference to the previous franchisee, GNER, had been obliterated with paint overnight. And I was bemused by the fact that in the buffet car, one of the waitresses was turning all the cups the right way up, in line with a new corporate policy; GNER had always placed them upside down on the saucers.
As of a couple of weeks ago, National Express is no longer the ECML franchisee. It was stripped of its right to run the line because it failed to make the required payments to the government. The line is now operated, at least for the next two years, by a special-purpose public company. Its first action has been to paint out the National Express name from the trains and the stations. No word yet on the coffee cups.
So National Express, which operated no fewer than seven of the UK's 20 or so rail franchises a couple of years ago, is now down to two, and it has been told it will lose both of those by 2011. One rail industry expert, interviewed on Radio 4, opined that the franchising system may be on its last legs: who, he asked, is likely to bid for any of National Express's franchises when they are retendered, given the problems that this evidently experienced operator has run into?
I wonder. The flaw in the franchising system is so perfectly simple that, if it didn't occur to the politicians and the public servants when they concocted the whole awful mess back in the 1990s, it's unlikely to occur to them now. Ready? Virtually all of the people in the UK who were competent in any way to run a railway were working for British Rail at the time of privatisation. So there was nobody out there who could do the job cheaper or better than those who were already doing it. This remains the case when franchises change hands today: the guy who clocked off as a National Express driver on the day the ECML franchise was lost, clocked on as an employee of the new company next day, and drove the same train on the same route in accordance (or not) with the same timetable.
This simple and unavoidable fact explains much about the way that privatisation has worked in practice. Examples?
* It explains why cosmetic changes (the signage and the coffee cups again) seem to take precedence over meaningful change. It's easy to hire marketing types and graphic artists, but there are not a lot of railway engineers sitting around twiddling their thumbs waiting for your call.
* It explains why wages for drivers and others have soared since privatisation. For better or worse, the old BR was both a monopolist in supplying rail services and a monopsonist in employing railway staff and buying equipment. In the past, if you were a train driver, you worked for BR, and were paid whatever your union could negotiate for you. Now you and your union can play one franchisee against another in pursuit of higher wages.
* This applies to management too; the new CEO of the government-run east coast line is a woman who previously headed up my local commuter franchise, Thameslink, which was not exactly a byword for customer service and satisfaction. Now she's running one of the two most important long-distance lines in the UK.
* Most basically of all, it explains why so many franchises have run into trouble. There's not much they can do to differentiate themselves, stuck as they are with the same stations, people and rolling stock. So they make extravagant financial pledges in order to win the franchises, only to get into trouble as soon as things deviate from plan.
There are other problems with the way that rail privatisation was carried out in the UK -- the sweetheart deals given to the leasing companies, the pervasive regulatory power retained by the government. These were avoidable and reversible policy mistakes, though admittedly there is not much sign that anyone is in any hurry to reverse them. But the failure to recognise that there was simply not much in the way of real expertise that private sector operators could bring to the running of the railways, apart from a snappy line in colour schemes, was a fundamental error.
It would be nice to think that the franchise system, which has proved massively more expensive than BR ever was, is on its last legs. As with the 6:17 to London, though, I'll believe it when I see it.
Saturday, 28 November 2009
Tuesday, 24 November 2009
What a good idea!
After their humiliating 9-1 hammering by Tottenham, Wigan Athletic's players have agreed to compensate the fans who travelled all the way to London to witness the debacle. About 450 people will be offered a refund of their travel costs and the price of their tickets.
The cost to the players is nugatory -- no more than £10,000 in total -- but the principle that useless people should voluntarily forfeit some of their earnings is an intriguing one. I'm not thinking only about footballers, though Messrs Berbatov and Pavlyuchenko might want to take note; there are applications in the wider world too....
* The Duke of York (Prince Andrew) in his role as "special trade envoy" has cost taxpayers a fortune. I've never heard an exporter say "we only got that deal thanks to good old Andy", so I think we should be offered a refund.
* ditto Lord Sugar in his role as "enterprise czar". Other than pissing off everyone he's met in Whitehall, what has he achieved?
*ditto ditto Tony Blair in his role as Middle East peace envoy. Truth to tell, he's probably totally useless in his ambassadorial role for Zurich Insurance and JPM as well, but at least they can afford him.
* ditto ditto ditto Alan Greenspan for almost wilfully steering the global economy onto the rocks. Now he has the chutzpah to get paid all over again for pontificating about it.
With only a modicum of effort, this could get to be a very long list, and we haven't even started on the managements of HBOS and RBS, Michael Grade at ITV, Martin Johnson of the England rugby team, Sven-Goran Eriksson in every job he's had for the past five years.....
The cost to the players is nugatory -- no more than £10,000 in total -- but the principle that useless people should voluntarily forfeit some of their earnings is an intriguing one. I'm not thinking only about footballers, though Messrs Berbatov and Pavlyuchenko might want to take note; there are applications in the wider world too....
* The Duke of York (Prince Andrew) in his role as "special trade envoy" has cost taxpayers a fortune. I've never heard an exporter say "we only got that deal thanks to good old Andy", so I think we should be offered a refund.
* ditto Lord Sugar in his role as "enterprise czar". Other than pissing off everyone he's met in Whitehall, what has he achieved?
*ditto ditto Tony Blair in his role as Middle East peace envoy. Truth to tell, he's probably totally useless in his ambassadorial role for Zurich Insurance and JPM as well, but at least they can afford him.
* ditto ditto ditto Alan Greenspan for almost wilfully steering the global economy onto the rocks. Now he has the chutzpah to get paid all over again for pontificating about it.
With only a modicum of effort, this could get to be a very long list, and we haven't even started on the managements of HBOS and RBS, Michael Grade at ITV, Martin Johnson of the England rugby team, Sven-Goran Eriksson in every job he's had for the past five years.....
Thursday, 19 November 2009
A royal waste of breath
Yesterday's Queen's Speech to Parliament is being described as both "the most nakedly political in years", and "the opening shot in a six-month election campaign". Somebody please shoot me now. If this is the Labour government's idea of a winning election manifesto, we really don't need to wait so long for a chance to vote. In fact we probably don't need to vote at all, unless, God forbid, the electorate really is as gullible as Gordon Brown et al appear to think it is.
I'm not sure which aspect of the speech is more maddening -- what's in it, or what's not. Let's just take a couple of the inclusions. There's to be a bill to curb internet piracy, a problem that seems to obsess Lord Mandelson but probably means absolutely nothing to most voters. Can this really be a priority? Then there's a bill to address the non-problem of older people having to sell their homes to pay for care, by providing free at-home care to all who request it. (When I say it's a non-problem, I don't mean that people don't have to sell their homes to pay for care. I mean that it's not a problem that they have to do so). This half-assed idea has been torn to shreds not only by the opposition, but by Labour peers. One, Lord Lipsey, believes it will increase isolation and disease among older folk who are persuaded to live at home (possibly by their greedy heirs) rather than move into care.
As for the exclusions, the absence of any legislation to deal with the MPs expenses scandal is remarkable. It has raised the eyebrows not only of the politicians but of Sir Christopher Kelly, who only just finished a very long report with all manner of recommendations for fixing the system. (Harriet Harman told the Commons today that reforms could go ahead without any new legislation. I'm sure we're all reassured by that).
The biggest exclusion of all, of course, is any semblance of costing for this ragbag of ideas. The Chancellor's pre-budget report, due later this month, is unlikely to make pleasant reading. It will be interesting to see what assumptions he makes about spending and revenues in order to meet the goal of cutting the deficit within four years, a target that is supposed to be made mandatory by another wackjob bill in the Queen's Speech. (Zeno's budget paradox: if the deficit really does fall by 50% in the next four years, and the next government announces another 50% reduction for the succeeding four years, how long will it take for the public finances to return to surplus? The answer is, of course, that it never will, which is one reason why long-term targeting of this sort should be avoided). The figures for public borrowing in October, which were published today, are not encouraging, so it would be an understatement to say that the Chancellor has no room for manouevre, even without this week's uncosted shopping list.
In the end, of course, this is all largely academic. I read somewhere that there are 33 sitting days left in the Parliamentary session, so the chances of any of the 15 bills in the Queen's Speech getting onto the statute books is pretty much nil. It seems almost cruel to have forced an 84-year old woman wearing a polar bear costume to schlep all the way down the Mall to read the speech. Maybe she was persuaded to do it in return for the promise of free at-home care in her later years. If I were you, your Maj, I wouldn't be holding my breath.
I'm not sure which aspect of the speech is more maddening -- what's in it, or what's not. Let's just take a couple of the inclusions. There's to be a bill to curb internet piracy, a problem that seems to obsess Lord Mandelson but probably means absolutely nothing to most voters. Can this really be a priority? Then there's a bill to address the non-problem of older people having to sell their homes to pay for care, by providing free at-home care to all who request it. (When I say it's a non-problem, I don't mean that people don't have to sell their homes to pay for care. I mean that it's not a problem that they have to do so). This half-assed idea has been torn to shreds not only by the opposition, but by Labour peers. One, Lord Lipsey, believes it will increase isolation and disease among older folk who are persuaded to live at home (possibly by their greedy heirs) rather than move into care.
As for the exclusions, the absence of any legislation to deal with the MPs expenses scandal is remarkable. It has raised the eyebrows not only of the politicians but of Sir Christopher Kelly, who only just finished a very long report with all manner of recommendations for fixing the system. (Harriet Harman told the Commons today that reforms could go ahead without any new legislation. I'm sure we're all reassured by that).
The biggest exclusion of all, of course, is any semblance of costing for this ragbag of ideas. The Chancellor's pre-budget report, due later this month, is unlikely to make pleasant reading. It will be interesting to see what assumptions he makes about spending and revenues in order to meet the goal of cutting the deficit within four years, a target that is supposed to be made mandatory by another wackjob bill in the Queen's Speech. (Zeno's budget paradox: if the deficit really does fall by 50% in the next four years, and the next government announces another 50% reduction for the succeeding four years, how long will it take for the public finances to return to surplus? The answer is, of course, that it never will, which is one reason why long-term targeting of this sort should be avoided). The figures for public borrowing in October, which were published today, are not encouraging, so it would be an understatement to say that the Chancellor has no room for manouevre, even without this week's uncosted shopping list.
In the end, of course, this is all largely academic. I read somewhere that there are 33 sitting days left in the Parliamentary session, so the chances of any of the 15 bills in the Queen's Speech getting onto the statute books is pretty much nil. It seems almost cruel to have forced an 84-year old woman wearing a polar bear costume to schlep all the way down the Mall to read the speech. Maybe she was persuaded to do it in return for the promise of free at-home care in her later years. If I were you, your Maj, I wouldn't be holding my breath.
Friday, 13 November 2009
The Beeb and the Babe
There's no sign of any let-up in the Murdoch empire's assault on the BBC. Today The Times leads with the story that 37 BBC executives earn more than the Prime Minister. (How many Murdoch executives earn more than the PM? None of your business...but we'll come back to that).
There's nothing new about this line of attack. In the late 1920s the highest-paid sportsman in America was Babe Ruth of the New York Yankees. (Pop quiz: what was the Babe's real name? Answer at the end of this posting). Chided by the press for making more money than the President, the Babe had a simple response: "I had a better year".
Considering the kind of year Gordon Brown has had, it's certain that everyone on The Times's list could use that defence. But that's not really the point, is it? Is there any logic at all to the Times's barely-hidden implication that people in the public sector should never earn more than the PM? On what basis is Gordon Brown the appropriate comparator when deciding how much money Alan Yentob should be paid? Or, assuming for a second that this is not just about the BBC, though for Murdoch it probably is, how much a top surgeon or the administrator of a failing hospital should get? Yentob could very easily score a job elsewhere; the surgeon has years of training and could undoubtedly make more in private medicine or by moving abroad. Does anyone seriously think that Gordon Brown could step into a better-paying job at will?
Most people's remuneration is decided by the market, something that Murdoch is generally all in favour of. Now of course, the BBC hasn't helped its own cause by overpaying some of the on-air "talent". There's nobody out there who would be willing to pay Jonathan Ross what he currently pulls down from the Beeb, as I suspect Jonathan may soon find out. Almost as certainly, there's nobody at News International not named Murdoch who's in Ross's pay bracket -- though of course, unlike the BBC, News International isn't under any pressure from the media to disclose that. But Ross and a few other high profile individuals are the exception rather than the rule, and the BBC has already called a halt to the gravy train.
This cynical and hypocritical attack on the BBC is a foretaste of the sort of thing we can expect if Murdoch succeeds in his lobbying efforts to remove the obligation on news broadcasters to be free of bias. There are distressing signs that the Tories are in the process of selling their souls to Murdoch, bartering promises of regulatory changes for his support in the next election. I wonder how much Murdoch pays Fox News's rabid on-air attack dog, Glenn Beck? It may not be too long before we see him and his "fair and balanced" views on the air here.
And the Babe's real name? George Herman Ruth.
There's nothing new about this line of attack. In the late 1920s the highest-paid sportsman in America was Babe Ruth of the New York Yankees. (Pop quiz: what was the Babe's real name? Answer at the end of this posting). Chided by the press for making more money than the President, the Babe had a simple response: "I had a better year".
Considering the kind of year Gordon Brown has had, it's certain that everyone on The Times's list could use that defence. But that's not really the point, is it? Is there any logic at all to the Times's barely-hidden implication that people in the public sector should never earn more than the PM? On what basis is Gordon Brown the appropriate comparator when deciding how much money Alan Yentob should be paid? Or, assuming for a second that this is not just about the BBC, though for Murdoch it probably is, how much a top surgeon or the administrator of a failing hospital should get? Yentob could very easily score a job elsewhere; the surgeon has years of training and could undoubtedly make more in private medicine or by moving abroad. Does anyone seriously think that Gordon Brown could step into a better-paying job at will?
Most people's remuneration is decided by the market, something that Murdoch is generally all in favour of. Now of course, the BBC hasn't helped its own cause by overpaying some of the on-air "talent". There's nobody out there who would be willing to pay Jonathan Ross what he currently pulls down from the Beeb, as I suspect Jonathan may soon find out. Almost as certainly, there's nobody at News International not named Murdoch who's in Ross's pay bracket -- though of course, unlike the BBC, News International isn't under any pressure from the media to disclose that. But Ross and a few other high profile individuals are the exception rather than the rule, and the BBC has already called a halt to the gravy train.
This cynical and hypocritical attack on the BBC is a foretaste of the sort of thing we can expect if Murdoch succeeds in his lobbying efforts to remove the obligation on news broadcasters to be free of bias. There are distressing signs that the Tories are in the process of selling their souls to Murdoch, bartering promises of regulatory changes for his support in the next election. I wonder how much Murdoch pays Fox News's rabid on-air attack dog, Glenn Beck? It may not be too long before we see him and his "fair and balanced" views on the air here.
And the Babe's real name? George Herman Ruth.
Monday, 9 November 2009
Rhymes with "trade your eyes"
Former "Poet" Laureate "Sir" Andrew Motion is in trouble with a historian, Ben Shephard, who accuses him of the most heinous of literary crimes -- something that "begins with 'p' and it isn't poetry", as Shephard puts it.
Motion's poem, "An Equal Voice", was published in the Guardian on Saturday as a tribute to war veterans. Shephard couldn't help noticing that five of the eight stanzas were almost identical to passages from his own book, "A war of nerves", which featured quotes from soldiers who had experienced shell-shock. The other three stanzas also sample Shephard's work, though to prove that Motion can so do his research. there are also a few excerpts from another writer, the WW1 poet Siegfried Sassoon.
Motion has decided that the best defence is a good offence. He claims his work is in keeping with an honourable and ancient tradition of "found poetry". Well, as my mother would have said, he found it before it was lost.
To my mind, Motion only compounds the felony by attempting to name and shame William Shakespeare for a similar offence. I used to think Motion was just a really bad poet; I hadn't realised he was deeply deluded. To misquote Muhammad Ali only slightly, "if Andrew Motion even dreamed he was like William Shakespeare, he'd have to apologise".
Motion's poem, "An Equal Voice", was published in the Guardian on Saturday as a tribute to war veterans. Shephard couldn't help noticing that five of the eight stanzas were almost identical to passages from his own book, "A war of nerves", which featured quotes from soldiers who had experienced shell-shock. The other three stanzas also sample Shephard's work, though to prove that Motion can so do his research. there are also a few excerpts from another writer, the WW1 poet Siegfried Sassoon.
Motion has decided that the best defence is a good offence. He claims his work is in keeping with an honourable and ancient tradition of "found poetry". Well, as my mother would have said, he found it before it was lost.
To my mind, Motion only compounds the felony by attempting to name and shame William Shakespeare for a similar offence. I used to think Motion was just a really bad poet; I hadn't realised he was deeply deluded. To misquote Muhammad Ali only slightly, "if Andrew Motion even dreamed he was like William Shakespeare, he'd have to apologise".
Mr Peace, meet Miss Blyton
I gave a big thumbs-up to David Peace's novel "The Damned United" when I read it last year. I just got around to seeing the film, which is an absolute masterclass in how NOT to adapt a book for the screen. Here's a review I just posted on Lovefilm:
You don't know what you're doing!
David Peace's extraordinary novel 'The Damned United' waded into the story of Brian Clough's ill-fated 44-day spell as manager of Leeds United with fists flying. Clough was portrayed as a teary, sweary, bleary boozer who hated the Leeds players as much as they hated him. It was so hard hitting that, just before the film based on the book was due for release, the Clough family sponsored a documentary of their own to tell their side of the story.
Did I just say this film was 'based on the book'? If it was, the screenplay must have been adapted by Enid Blyton. Who knows, it may well be a more accurate depiction of 'what really happened' than the book ever was, but it's not nearly as interesting or enjoyable. It's about as much fun as a floodlight failure during an Accrington Stanley Reserves game on a wet January night. Avoid the film. Read the book.
It's good to have got that off my chest. Now I'm hoping that my wife, who sat through this tedious nonsense with me, will be talking to me again by the end of the week.
You don't know what you're doing!
David Peace's extraordinary novel 'The Damned United' waded into the story of Brian Clough's ill-fated 44-day spell as manager of Leeds United with fists flying. Clough was portrayed as a teary, sweary, bleary boozer who hated the Leeds players as much as they hated him. It was so hard hitting that, just before the film based on the book was due for release, the Clough family sponsored a documentary of their own to tell their side of the story.
Did I just say this film was 'based on the book'? If it was, the screenplay must have been adapted by Enid Blyton. Who knows, it may well be a more accurate depiction of 'what really happened' than the book ever was, but it's not nearly as interesting or enjoyable. It's about as much fun as a floodlight failure during an Accrington Stanley Reserves game on a wet January night. Avoid the film. Read the book.
It's good to have got that off my chest. Now I'm hoping that my wife, who sat through this tedious nonsense with me, will be talking to me again by the end of the week.
Wednesday, 4 November 2009
It's a wonderful bank??
Can Alastair Darling make the British public love its banks again? Right now, attitudes to banks are thoroughly poisoned. Long before the credit crunch, people were angry over the endless electronic menus, the impersonal call centres replacing branches, the mind-boggling overdraft fees, product mis-selling and on and on. The credit crunch added monster bonuses, giga bailouts, falling deposit rates and vanishing credit to the litany of grievance.
It wasn't always this way. Older people may still recall the days when their local bank seemed like the Bailey Building and Loan Company in "It's a wonderful life". George Bailey was a philanthropic pillar of the community, known and loved by young and old alike, and there was a time when many people may have looked on the manager of their local branch in much the same way. Strange to say, Bailey Building and Loan wasn't actually the local bank of the fictional town of Bedford Falls. In fact, the banker was the villain of the piece, and drove George to the brink of suicide. So perhaps not so much has changed.
Back in the real world, the highly-localised US banking system portrayed in "It's a wonderful life" has been in decline ever since the Great Depression. There are still many more small banks in the US than in any other developed country, but the number is falling year by year. There are many reasons, good and bad, why banks tend to grow by consolidation. Among them:
* diversification of both assets and liabilities is a good thing. A bank whose activities are entirely confined to a small community like Bedford Falls is unlikely to find things easy over the course of a business cycle. Assume, for instance, that Bedford Falls is an agricultural town. When crops are good, all the clients will be cash rich. The bank will be awash in deposits and struggling to find suitable loans. In leaner years, deposits will fall and the bank may have trouble providing the loans that its clients suddenly need. In a really bad year, the loans will go bad and the bank will struggle to remain solvent. A reasonable level of diversification, geographical or across industries, can help to mitigate those problems.
* as people became much more mobile over the course of the last century, they expected to be able to take their bank with them as they moved around. Local banks could try to deal with this demand by setting up agency arrangements, but this was quite literally a mediaeval approach, and a very cumbersome one at that. At some point it became much simpler for banks to merge.
* there are overheads that have to be met whether you have one branch or a hundred or a thousand. Auditors, lawyers, marketing and so on are much more onerous expenses for a small bank than for a large one.
* as a particular sub-set of the previous point, back-office automation is both hugely expensive and massively scaleable. When I was working for one of the "Big Five" in Canada, it was generally accepted that each bank had a back-office system that was capable of handling the daily clearing, monthly payrolls and everything else for the entire financial system. This point was fully proven when several Canadian banks merged their back office and programming systems in the late 1990s in order to cut costs. Matching the electronic services that a large bank can perform on behalf of its customers would be prohibitively expensive for a small bank.
In the UK the number of clearing banks has been falling for decades (anyone remember National Provincial -- itself the result of a merger -- or Martins Bank?), but until recently the building societies provided a reasonable alternative. Then along came the Decade of Greed, and almost all of the building societies demutualised, often under pressure from carpetbaggers. In no time flat they were either voluntarily taken over by the banks (C and G, Abbey), forced into mergers with banks after getting themselves into trouble (Bradford and Bingley) or -- the the case of Northern Rock -- driven to the brink of failure. The dominance of banking services by the clearing banks was reaching uncompetitive levels even before the government overrode competition laws in 2008 to permit the takeover of HBOS by Lloyds, a move that has proved near disastrous for the government and Lloyds alike.
All of which is a lengthy preamble to suggesting that Alastair Darling's plan to break up those banks that have received the most state aid (RBS, Lloyds and Northern Rock) may be no more than spitting into the wind. Spinning the old Williams and Glyns Bank out of RBS, or TSB out of Lloyds, as the government (prodded by the EU) now proposes, will only add marginally to the amount of retail banking competition in the UK. In fact, it may not even do that. There are already suggestions that Santander, not exactly a minnow, may seek to add Williams and Glyns to its own burgeoning empire, alongside Abbey and Bradford and Bingley, erstwhile real competitors whose venerable names will disappear at the start of 2010. Even if W & G or TSB were minded to stay independent, could they afford the computer systems that would be needed to compete with the larger firms, or would they continue to use the systems of their former parent? And if by chance they were successful, how long would it be before the initial buyers decided to cash in and sell to a bigger firm at a huge profit, prompting a public outcry over foregone profits for the taxpayer?
Bank of England Governor Mervyn King declared a couple of weeks ago that there was a strong case for breaking up the banks. He was rounded on by the Government for daring to say so, even though Darling et al must have known by that time that they were about to be forced by the EU to do precisely that. King hasn't been heard from yet on the government's specific plans, but it's a good bet that he thinks they aren't radical enough. But even if they were, it's unlikely that Sir Fred Goodwin and his ilk will emerge as the George Baileys of the modern age.
It wasn't always this way. Older people may still recall the days when their local bank seemed like the Bailey Building and Loan Company in "It's a wonderful life". George Bailey was a philanthropic pillar of the community, known and loved by young and old alike, and there was a time when many people may have looked on the manager of their local branch in much the same way. Strange to say, Bailey Building and Loan wasn't actually the local bank of the fictional town of Bedford Falls. In fact, the banker was the villain of the piece, and drove George to the brink of suicide. So perhaps not so much has changed.
Back in the real world, the highly-localised US banking system portrayed in "It's a wonderful life" has been in decline ever since the Great Depression. There are still many more small banks in the US than in any other developed country, but the number is falling year by year. There are many reasons, good and bad, why banks tend to grow by consolidation. Among them:
* diversification of both assets and liabilities is a good thing. A bank whose activities are entirely confined to a small community like Bedford Falls is unlikely to find things easy over the course of a business cycle. Assume, for instance, that Bedford Falls is an agricultural town. When crops are good, all the clients will be cash rich. The bank will be awash in deposits and struggling to find suitable loans. In leaner years, deposits will fall and the bank may have trouble providing the loans that its clients suddenly need. In a really bad year, the loans will go bad and the bank will struggle to remain solvent. A reasonable level of diversification, geographical or across industries, can help to mitigate those problems.
* as people became much more mobile over the course of the last century, they expected to be able to take their bank with them as they moved around. Local banks could try to deal with this demand by setting up agency arrangements, but this was quite literally a mediaeval approach, and a very cumbersome one at that. At some point it became much simpler for banks to merge.
* there are overheads that have to be met whether you have one branch or a hundred or a thousand. Auditors, lawyers, marketing and so on are much more onerous expenses for a small bank than for a large one.
* as a particular sub-set of the previous point, back-office automation is both hugely expensive and massively scaleable. When I was working for one of the "Big Five" in Canada, it was generally accepted that each bank had a back-office system that was capable of handling the daily clearing, monthly payrolls and everything else for the entire financial system. This point was fully proven when several Canadian banks merged their back office and programming systems in the late 1990s in order to cut costs. Matching the electronic services that a large bank can perform on behalf of its customers would be prohibitively expensive for a small bank.
In the UK the number of clearing banks has been falling for decades (anyone remember National Provincial -- itself the result of a merger -- or Martins Bank?), but until recently the building societies provided a reasonable alternative. Then along came the Decade of Greed, and almost all of the building societies demutualised, often under pressure from carpetbaggers. In no time flat they were either voluntarily taken over by the banks (C and G, Abbey), forced into mergers with banks after getting themselves into trouble (Bradford and Bingley) or -- the the case of Northern Rock -- driven to the brink of failure. The dominance of banking services by the clearing banks was reaching uncompetitive levels even before the government overrode competition laws in 2008 to permit the takeover of HBOS by Lloyds, a move that has proved near disastrous for the government and Lloyds alike.
All of which is a lengthy preamble to suggesting that Alastair Darling's plan to break up those banks that have received the most state aid (RBS, Lloyds and Northern Rock) may be no more than spitting into the wind. Spinning the old Williams and Glyns Bank out of RBS, or TSB out of Lloyds, as the government (prodded by the EU) now proposes, will only add marginally to the amount of retail banking competition in the UK. In fact, it may not even do that. There are already suggestions that Santander, not exactly a minnow, may seek to add Williams and Glyns to its own burgeoning empire, alongside Abbey and Bradford and Bingley, erstwhile real competitors whose venerable names will disappear at the start of 2010. Even if W & G or TSB were minded to stay independent, could they afford the computer systems that would be needed to compete with the larger firms, or would they continue to use the systems of their former parent? And if by chance they were successful, how long would it be before the initial buyers decided to cash in and sell to a bigger firm at a huge profit, prompting a public outcry over foregone profits for the taxpayer?
Bank of England Governor Mervyn King declared a couple of weeks ago that there was a strong case for breaking up the banks. He was rounded on by the Government for daring to say so, even though Darling et al must have known by that time that they were about to be forced by the EU to do precisely that. King hasn't been heard from yet on the government's specific plans, but it's a good bet that he thinks they aren't radical enough. But even if they were, it's unlikely that Sir Fred Goodwin and his ilk will emerge as the George Baileys of the modern age.
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