They can't just up sticks and abandon communities
Malpractices and fraud have become key features of the business model of banks. Despite record fines and huge losses, the fat-cattery continues. One report has estimated that some 80 per cent of Europe’s highest earning bankers are in the UK.
Rather than mending their ways or improving services to customers, bank executives have found another way to boost their coffers.
Despite receiving a vast amount of financial support from the public, they are shrinking the bank branch network – leaving rural communities, the elderly, self-employed and small businesses in the lurch.
It is time to impose some social responsibility on banks and curb their appetite for branch closures.
The 2008 banking crash and the ensuing mergers (for example between Lloyds, Halifax and Northern Rock) have resulted in duplication of branches under the same badge and subsequent closure of some branches.
Many small towns and villages now lack a bank branch. This is partly an outcome of technological changes as more people, especially young people, use ATMs, debit or credit cards, the internet and digital transactions.
Loans and overdrafts can be arranged via the phone or websites in accordance with a pre-determined formula, rather than the specific circumstances of an individual or an expanding small business.
Or people can trek to another town with a bank branch – assuming that affordable transport from some villages and remote areas is actually available.
Even then it is not an easy task for the elderly, the infirm, women with small children or local entrepreneurs just keeping their head above water. In any case, the additional travel generates extra pollution and is damaging to the environment.
People without computers and smartphones can’t easily access financial services. This can’t easily be reconciled with the government policy of reducing exclusion from financial services.
Without a local branch, local shops and the self-employed can’t easily bank cash-takings and cheques. Without a local branch, banks can’t easily build a picture of local businesses, risks and opportunities and thus cannot provide required financial support for local economies.
The closure of local bank branches increases commercial decline of town centres as well-off and mobile people travel to other towns and change their spending habits.
The loss of the customer base makes it difficult for local councils to regenerate town centres and for local businesses to secure finance for new start-ups or support for tougher times. The lack of banking choices in communities also has consequences for competition in the provision of financial services.
In 2015, banks published a voluntary protocol to address the social consequences of branch closures, but this has not stemmed closures or improved facilities for local communities. It is time for statutory action.
Banks should not easily be able to up sticks and abandon local communities. There has to be a quid pro quo with society which gives enormous support to banks.
For example, taxpayers have bailed out banks. Nearly nine years after the banking crash, the Bank of England’s quantitative easing (QE) programme continues to pump billions of pounds into banks to enable them to boost their balance sheets.
The state, or the public, is the lender of the last resort. The deposit-taking licence provided by the state enables banks to trade.
Furthermore, by guaranteeing the safety of £85,000 of saver deposits, the state instils confidence and stability in banking. The state bolsters the customer base of banks by insisting that pensions and social security payments are made through banks.
Since 2009, the Bank of England has operated a policy of low interest rates which has resulted in huge wealth transfers from ordinary people to banks. In March 2009, the interest rate was fixed at 0.5 per cent and reduced to 0.25 per cent in August 2016.
This decimated the returns on pension annuities and savings, but gave banks cash, their basic raw material, virtually free.
In return for the above support, it is reasonable to require that banks reciprocate and accept a degree of social responsibility. All plans for branch closures should be submitted to the banking regulator and there should be consultation with the local communities before any closures.
The regulator should require banks to demonstrate that after branch closure, the local financial infrastructure would still be able to provide the required financial services.
This could be done by requiring banks to provide mobile banking services or provide alternative services through local post offices, supermarkets and credit unions. Banks should be required to provide training to staff operating through these alternative facilities.
Prem Sikka is Professor of Accounting at Essex Business School’s Centre for Global Accountability
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