Labour will introduce major changes to bank law to prevent banks forcing
through closures of vital high-street banks
As part of Labour’s plans to rejuvenate the high street and
protect local communities, the next Labour Government will make major changes
to the banking law that will prevent banks closing their vital high-street
branches and damaging local communities and small businesses.
Despite
the introduction of an “Access to Banking Protocol” to prevent closures by this
Conservative Government, the Consumers Association reports that 1,046 local
bank branches closed in the UK between December 2015 and January 2017, with
another 486 already scheduled for closure this year.
But
the Big four banks made over £11bn profits from their high street banks in
2015, and can afford to provide this vital customer service instead of
prioritising cost-saving measures that damage communities and small businesses.
Over
two-thirds of small businesses claim that a local bank branch is important and
lending to small businesses has been found to drop by 63 per cent in areas with
a recent bank branch closure. For deprived communities and households, loss of
a local bank branch significantly diminishes their abilities to access even
basic financial services. Older people are significantly less likely to use
internet or phone banking services.
Labour
believes tougher action is needed on our major banks to prevent them putting
their profits first and making short-sighted and damaging decisions. We will
replace the toothless Access to Banking Protocol with the force of the law to
bring banks into line.
Shadow
Chancellor John McDonnell, will say:
“High
street bank closures have become an epidemic in the last few years, blighting
our town centres, hurting particularly elderly and more vulnerable customers,
and local small businesses whilst making healthy profits for themselves. It’s
time our banks recognise instead that they are a utility providing an essential
public service.
“Only
Labour will put in place the legal obligations needed to bring banks into line
and stand up for our high streets, communities and small businesses.”
Emeritus
Professor, Prem Sikka, University of Essex, who advised on the policy, said:
“Banks
receive considerable financial support from the public and in return should be
required to provide financial infrastructure that meets the needs of
individuals and businesses.”
ENDS
Notes:
1. A future Labour government will broaden the duties of the
Financial Conduct Authority (FCA) and amend relevant provisions of the
Financial Services and Markets Act 2000 (FSMA), particularly Part 4A of the
Act, which authorises banks to carry on the regulated activity (i.e. the
‘banking licence’). These amendments would require banks to accept the
conditions laid down below:
a. Prior to the closure of any branch, banks must undertake
a consultation with all customers of the branch which it proposes to close. It
must also consult representatives of the relevant local
council.
b. The bank must publish details of the reasons for closure,
including financial calculations showing the revenues and costs of the relevant
branch. The share of central costs (e.g. accounting systems, IT, cyber
security, personnel function) allocated to the branch must be separately
identified, especially many of these costs are relatively ‘fixed’ and are not
proportionate to the number of branches.
c. The consultation process must be overseen by the FCA, and
the FCA must ensure that the closure of the branch does not degrade the local
financial infrastructure. The closure of the branch must not make the local
community worse-off.
d. The FCA’s approval will be needed for any branch closure.
e. Upon approval by FCA, customers and local communities
must be given 3 months’ notice to enable them to make appropriate arrangements.
2. Labour will amend the statutory objectives, as given at
s.9B of the FSMA 2000, of the Financial Policy Committee should include a new
objective, the “Consumer Protection Objective”, which will oblige the FPC
to oversee (i) the accessibility of financial services to geographic
communities in the UK, and (ii) the availability of financial services to all
sectors of the population.
3. The
British Bankers Association found that 68 per cent of small businesses survey
thought that having a bank branch on the high street was important. See Barty,
J and Ricketts,T. (June 2014), Promoting competition in the UK banking
industry
4. Move
Your Money research found that “Before a branch closure, lending for SME’s
within a given postcode grows from one quarter to the next by 2.13 per cent on
average. But after a branch closure in that postcode, average Q-2-Q growth in
SME lending drops to only 0.79 per cent – a staggering 63 per cent reduction.”
Travers-Smith, F. (July 2016), Abandoned Communities: the crisis of UK bank
branch closures and their effects on local communities
5. The Social Market Foundation found that 11% of the
population (7m people) use no other banking service than their local high
street branch, and that these are overwhelmingly older and/or poorer. See
Evans, K. (January 2016), Bricks and Clicks: Understanding How Consumers
Manage Their Money, London: Social Market Foundation
6.
Bank branch closure figures from Goodman, R. (December 2016), “Revealed: 1,000
bank branches shut in two years”, Which?
7. Banking high street profits given in Travers-Smith,
F. (July 2016), Abandoned Communities: the crisis of UK bank branch closures
and their effects on local communities, p.13