In the City
One-stop banking
TonY Rudd
There is no truth in the rumour that one . of the clearing banks is going to buy a major brewery (although if one did, Lloyds would have to be a clear favourite as their Flianning sign, the Black Horse, would lend itself admirably to the promotion of the Hew real beer). Yet the idea is not as far- fetched as it might seem. A decade ago who would have thought that one of the banks would buy a major real estate business, as Lloyds has indeed just announced that it is doing? Evidently the banks are conte.m- Plating the extension of their marketing muscle into areas which really have nothing Ldo with banking as we have known it. ,Ie may yet have some further 'e,ThveloPments which could surprise us. The impulse behind this kind of move is by desire of the clearers to bring in deposits by getting new customers as a result of at- tracting them with new services. Everybody ,,k13°Nvs what an ordinary clearing bank of- 'ers by way of ordinary services. And in some ways these services are regarded by .he public as a kind of public utility, rather like the services of the Post Office or the Electricity Board. We have to have them, become evidently have to pay for them and so we The customers of the banks, willy-nilly. been banks are out to change this and have !)een for some years now. The biggest their decision to compete with building societies in the home loan business. As well as having a bank account everybody has to have a mortgage. So the banks argued to themselves that if they provided a good home loan service they would not only grab a big slice of business which itself amounts "9 a form of domestic banking but in addi- 'e'en they would earn the goodwill of the tustomer, who would repay it by doing the cest of his banking with the institution con- rtilletried, bringing his family and even, if he
s One, his company. Clearly the day of the specialised service which forces the individual to call at separate offices of separate organisations is threatened. Thus a depositor at a building society who can only as it were get building society services from his society must be at- tracted to a bank if it will provide what he was getting from a building society and, thrown in as well, all the rest of the finan- cial services he may need. But the principle of breaking into other people's markets once begun invites riposte. No wonder the Abbey Building Society has replied in kind by promising to offer cheque facilities to its depositors. Paradoxically this requires a clearer actual- ly to enter into an agreement with the socie- ty to clear the latter's cheques. Apparently in this case an arrangement has been reach- ed, which means that one of the clearers has broken ranks in what was understood to be a private little arrangement between the clearers that none of them would clear building society cheques. But it is a feature of real competition once it gets going that
understandings, nods and winks and so on,be they between the Bank of England and
commercial institutions on the one hand or between the latter on the other, get swept away. We can take it that this is the beginn- `Pollinating flowers is a little like sexual intercourse.' ing of a new era. Before long most of the large building societies will be able to offer their depositors chequing facilities. The wheel then will have come full circle. The banks will have got into building society business and the building societies will have got into banking.
The paradox about this breaking-down of barriers in the financial area is that it should be happening so shortly after the authorities in this country have tightened up by statute the rules about banking - who can call himself a bank and how he has to comport himself if he is one. For donkey's years the Bank and Whitehall leant as far away as they could from ever defining what a bank was. The constitution was strictly written. All you knew was that if you actually wanted to conduct a bank, even a private one, you found yourself in a kind of unofficial net as a result of which the Bank of England, through the Discount Office, knew what you were up to, saw your balance sheet and saw to it also that you were kept in order and helped out of difficulties. All that got swept away in the secondary banking crisis of the mid- Seventies to be replaced by a rule of law with all sorts of penalties and forms to fill.
Yet during the decades of informality, banks stuck to banking. Now we are in the era of an authoritarian regime, and nobody seems to know his place any more. Com- petition has broken out just when regula- tion has come in.
The trend mirrors what is happening in America. There, the big brokerage houses, like Merrill Lynch, E. F. Hutton and Bache, are providing (particularly the first named) across-the-board financial services which cover far more than what might be expected from a simple broker. They offer services in commodities, the futures market, property, and management of money. The latter comes perilously near to common or garden bank facilities.
Whether the dissolution of financial frontiers in the UK will go the same route as in America is somewhat doubtful. The brokerage business here has not developed the wide range of financial services that its counterpart has in America. On the other hand, it is not a trend which should be en- tirely ruled out. Meanwhile, the battle for deposits in the UK is bound to heat up. The overhead structure of the clearing banks verges on the top-heavy. They desperately need the business if they are to remain pro- fitable in the years ahead. The customer is bound to benefit. Eventually he may even get a return on his day-to-day balances, despite the claim by the banks that the cost of clearing their customers' cheques itself represents a handsome return (though a strictly notional one) on the day-to-day money left with them. Competition is a great spur. However, while the banks work away at expanding their deposit bases, it is still a matter of national interest what they actually do with the money. Specifically, are they really lending enough of it and in the right form to industry? That is another story.
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