United Kingdom and regional banking markets

banking failure and reform
Which? launches a major new campaign, ‘Big Change’, today calling on the banks to put
customers first not bankers, as new research shows that banking is one of the least trusted
professions. Two-thirds of people (67%) think that bankers are unlikely to lose their job if
they lie or cheat, a new Which? survey found. A similar proportion think bankers are unlikely
to lose their job if they failed to comply with industry codes of conduct (63%), delivered
consistently poor service (64%) or received a high number of complaints from customers
(64%). Only one in 10 people (11%) say they trust bankers to act in their best interests. More
people say they distrust bankers than estate agents (65% compared to 51%) and a mere six
per cent of people say they associate ethical behaviour with bankers. Just one in ten (10%)
think that bankers are well regulated.
Which? Press release, 19th September 2012 (Which?, 2012).
Ahead of this time’s crisis, financial and human resources were diverted away from retail
banking services and non-bank activities towards investment banking. At the same time, the
culture and practices of investment banking infiltrated retail banking – a sales culture which
culminated in harmful cross-selling and unlawful mis-selling.
Andrew Haldane, Director for Financial Stability, Bank of England, Speech at an Occupy
event, 29th October 2012 (Haldane, 2012).
Declining trust in UK banks and bankers are manifestations of significant problems in the retail
banking sector. A series of spectacular banking crises, including Northern Rock and the Royal Bank of
Scotland, as well as widespread and persistent mis-selling of financial products, have reinforced a
view that banks are not, contrary to much of their own marketing, primarily focused on the interests
of their customers. While much has been written about the banking crisis and the collapse of
individual institutions (Engelen et al. 2011; FSA 2009; Shin 2009; Treasury Select Committee 2009),
this paper takes a wider focus on the UK retail banking sector. The official response has been to see
the problem of banking as a failure of competition. However, this micro-economic framing of the
problem narrows the analysis onto the market; the framing also creates a circular process of
diagnosis and prescription of insufficiently competitive markets, leading to various – unsuccessful –
attempts to create more competitive ones. In this way, framing represents a selective social
construction of a problem and its associated remedy: frames are important because they organise
and focus, necessarily leaving some issues outside of the frame. However, where repeated attempts
at change leave policy makers (and bank customers) frustrated, changing the frame might yield new
insights and possibilities for reform.
Research from several fields has confirmed the importance of how problems are framed: whether it
is Kahneman and Tversky’s (1979) ground-breaking experiments which showed that individuals
respond differently to questions of risk and payoff or loss, depending on how problems are framed;
or Lakoff’s (2004) analysis of how progressive politics in the US has failed to reframe social and
economic issues in ways that allow more radical policies to be supported. Framing has become
important in fields such as communication studies, to explore how problems are presented and
interpreted. Such analysis finds that dominant frames can eventually become unquestioned, are
accepted by all parties and lead to a narrowing of the debate (Nisbet 2009). Conversely, framing can
also be used in a critical manner, as part of collective action and to facilitate change, including
through social movements (Gamson 1992).