Afternoon:
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It is a basic rule of capitalism that when a company stumbles, nimble new competitors come into the market to kick it when it is down and to try to grab its business. It is a rule that holds true for most sectors, provided the barriers to entry are not too daunting.
Were Rolls-Royce to trip up, for example, I doubt many would plunge into the jet-engine market. Rolls-Royce products have far too much embedded technology for that to be lightly undertaken, but one can see circumstances where Japanese or German engineering businesses with deep pockets may nevertheless be tempted.
But there are businesses which are dead simple, albeit it is not always easy to make money at them, and banking is quite clearly one of these.
So the laws of free markets would suggest that now would be the perfect time to start up a bank. Most of the existing players are disabled. They are so big they long since given up trying to offer half-decent client service — with the result that they have alienated and offended almost all their customers at some time or another — and they are so complex their managements seem to have difficulty working out what business they are supposed to be in.
They seem ripe for the taking.
In addition, and this is surely the key point, spreads on lending in this credit crunch world are much wider than they were a couple of years ago, so new loan business today is far more profitable than it has been for years. People will pay a lot more for credit now that it is scarce than they would when it was plentiful.
In America, they have got the point and in the past few months well over 100 new banks have been formed, often by people who have no particular interest in banking, but who are financially astute and sense an opportunity.
These new banks are not intended to be global leviathans out to pick up the mantle of Citigroup. For the most part, they are small, local banks created to fill niches and serve local needs in a way the big banks do not. Though it is early days, they appear to be doing well — certainly there are many others queuing up to follow them in.
It is just what we need in this country too — a new generation of bankers willing to go back to providing a simple, basic service.
Yet, in stark contrast to the United States, almost no one seems willing to take a chance. Indeed, I've heard of only one — the Cambridge-based entrepreneur and businessman and chairman of the Greater Cambridge partnership, Nigel Brown.
A one-time banker with Kleinwort Benson, he announced several months ago his intention to launch a “boring bank” which he said would specifically address the needs of businesses in his area. It was not his intention to get into the retail deposit and loan market.
Since then he has said little about it, although he has backers and is worth a few bob himself, but the silence is not because he has lost enthusiasm. Rather, it results from the fact that to proceed he needs approval from the Financial Services Authority. His application has gone in; it has not yet come out.
This would be the wrong time to suggest that the FSA is less than thorough in its vetting of people who want banking licences, but neither should it be so slow that it makes the job virtually impossible.
The opportunity exists now, and it is now that Britain needs its new banks, not in 18 months or two years when the FSA gets round to issuing its clearances. If Brown can get his bank up and running soon, then others would surely follow, and that would be the best possible antidote for the credit crunch and indeed the future of British banking.
Right man to steer regulation
Everyone knows that the only way to get better regulation is to think about it in advance, and to make sure not only that the proposed regulation will do the required job but also that the objective cannot be met more cheaply and effectively in other ways. Prompted by what used to be known as the Better Regulation Taskforce, the Government embraced research-based regulation, together with the idea that any proposed rule should have an impact assessment prepared in advance before the decision was made to proceed.
One of the depressing aspects of the current crisis is that this has gone completely out of the window. It was never exactly welcomed by Ministers and departments — with the assessments too often just another box to tick on the way to the Royal Assent, but at least it was a start. However, in its response to the financial crisis — in the proposals for new rules for hedge funds, new rules for banks, new rules for institutional investors, new rules for everyone (including post-expenses scandal MPs) — there is no mention of research in advance to establish the facts before rushing to legislate.
We ought, therefore, to pause to nod with approval in the direction of the International Centre for Financial Regulation, the London-based organisation set up last year under the leadership of former Standard & Poor's executive Barbara Ridpath. When it was conceived, the centre was seen as a centre of excellence that might provide intellectual input so badly needed in financial regulation and which might also support the City's light-touch approach, but it has been left at the gate by the hoards of rampaging politicians determined to save the world.
Yesterday, however, it announced the appointment of Dr Richard Reid , formerly managing director of Citigroup's economics department in London, as its first Director of Research. Low key though the announcement was, this is an important appointment at a vital time.
