Submission from the Campaign for Community Banking Services (S004)
The observations are confined to the community banking expertise and area of interest of the submitting organisation but conclude that the corporate structure and culture of the big UK banking groups is a significant factor in decision making affecting UK retail customers to the detriment of many small businesses, vulnerable individuals and the communities which they inhabit. Recommendations are made which would improve social responsibility, convenient access to banking and competitive choice for individuals and small businesses.
1. The Campaign for Community Banking Services (CCBS) is a coalition of 20 national charities, consumer and small business organisations which share concerns about the decline in local access to, and choice in, banking services particularly the closure of local bank branches and the impact of this on community sustainability, financial exclusion and carbon emissions.
2. The CCBS response to the Commission’s call for evidence is necessarily limited to the perceived impact of the corporate structure and culture of UK banking on branch closure policies
3. 44% of bank branches in the UK have been closed since 1990 with implications for competitive choice generally but, most importantly from a CCBS viewpoint, some 1200 communities have lost all physical banking presence and, CCBS published research identified at 31 December 2011 887 communities with only one bank remaining (no choice for branch dependent consumers) and 444 with only two banks. In 14 years of monitoring only 3 cases have been identified where a closing ‘last bank in community’ has been replaced by a competitor; this typifies the absence of competition between the dominant banks at this level. The process of quitting seems to be one of ‘get out first’ or ‘follow my leader’ as to be last draws the most public opprobrium and this has been exampled very recently in the Tankerton case study (Reports section of the CCBS website) and the much publicised nationally case of Woodhall Spa in Lincolnshire where there has been agreement on business opportunity but none of the big banks, including Santander and Co-operative, were prepared to entertain filling the void left by HSBC’s closure of the community’s only bank on August 17th 2012.
4. 94% of communities having only one or two banks are dependent on the Big 4 banking groups: Barclays, HSBC, Lloyds and RBS. Branch closures, especially in vulnerable communities, have accelerated as these groups became more dominant in the market and widened their horizons to include investment banking and international banking activities. Also there has been a growing move to recruit externally for top executive positions from other industries and countries, including the USA, Canada, Australia, Spain and Portugal, which has contributed to a feeling that the UK retail market is distanced from the principal decision makers and in some cases control of the UK Retail Division itself has been handed to non UK executives, most notably in the case of Barclays, Lloyds and RBS.
5. All four groups have been active in closing branches in vulnerable communities, with an adverse knock-on impact on the retail provision in the communities concerned (see Tankerton case study in the Reports section of the CCBS website). The biggest sector to suffer from bank branch closure is small businesses, 60% of which visit a bank branch at least weekly and 10% do so every day according to research by the Federation of Small Businesses. It is relevant to the subject of the Inquiry that the rate of closure has been highest in the case of the most globally run bank, HSBC, which has reduced its share of ‘last bank in town’ from 20% in 2003 to 10% in 2011.
6. HSBC is also notable for being the only one of the Big 4 to have declined, repeatedly, to give any level of pledge to maintain a banking presence where it is ‘last bank in town’. The pledges given by the other three vary widely in qualifying criteria and availability and, as voluntary initiatives, are not endurable in the way that a neutral shared branch (as advocated by CCBS and operated throughout the USA in a retail banking context) would be. Details of shared branching are available in the Reports section of the CCBS website under the title "Bank Closure Problems – One Solution Fits All". HSBC is also unique in not allowing its PCA customers access to post office counters, even for withdrawals.
7. All four banking groups have become totally resistant to public opinion and argument so once a closure decision is taken it will be implemented in 12 weeks, a notice period which has become to the banks an irritation rather than a period for consultation with the community. The situation in the USA, for example, is different in that regulators there have powers under the Community Reinvestment Act to ensure that banking service to low and middle income communities, by branch and ATM, is adequate.
CCBS recommends the Commission to look at:
· Making ‘last bank in community’ pledges uniform and mandatory on all banks.
· An independent assessment of neutral shared branches as an alternative to branch closure and a way of opening up competition amongst established and new entrant providers.
· A UK equivalent of the US Community Reinvestment Act to protect banking access in vulnerable communities.
· Imposing a public consultation requirement on banks prior to closing branches.
· Separating UK Retail Banking completely from the investment and international activities of the UK banking groups.
· Recruitment criteria for top executive positions in UK retail banks.
24 August 2012