Royal Bank of Scotland

Debate between Catherine West and Jon Cruddas

Thursday 5th November 2015 Commons Chamber

[Jon Cruddas]

Point taken. The stakeholder banks across Europe kept the real economy going while commercial banks’ lending was crashing.

The third point is that in the UK we paid the price for having deliberately dismantled stakeholder banks in the 1980s via demutualisation. We left ourselves with nothing to break the catastrophic fall in lending by the big banks, and since the crisis we have done next to nothing to address that fatal structural flaw. I would have thought that we could all agree that a more resilient capitalism is a desirable outcome.

[Catherine West]

Does my hon. Friend agree that Government policy has helped the larger players? According to commentary in the financial pages in the past few months, there are things that the Government could have done to help mutuals, but instead they just continued to play with big business and help it at the cost of mutuals. What are they doing to help the mutual sector?

[Jon Cruddas]

That is a good point. What are they doing to build a more mixed economy that is more resilient and is not prone to the catastrophic speculative attacks and collapse in lending that we saw at the back end of 2008?

It is not just in times of crisis that we suffer from our lack of a stakeholder banking sector; it is a problem for us in good economic times too. Research by NEF has found that stakeholder banks devote twice as much of their balance sheets to real-economy lending as commercial banks. Meanwhile, commercial banks invest more than twice as much in derivatives trading. Stakeholder banks also outperform commercial banks on lending to small businesses in Austria, Germany, the Netherlands and Canada, perhaps because they are rooted in local communities and can invest in local relationships, or because they do not have to worry about satisfying shareholders with double-digit quarterly returns. All this might help to explain why the UK banking system is the least effective in the G7 at supporting the real economy, with just over 20% of bank lending going towards productive activity, compared with more than 60% in Germany. Obviously, financial crises are the other side of the same coin, since the types of unproductive and speculative lending that dominate our banking system will tend to blow up bubbles which inevitably burst.

I could go on to list many other measures on which stakeholder banks appear to do better: higher customer satisfaction, higher deposit rates, lower loan rates, bigger branch networks, more job creation, and so on. Suffice it to say that if we want banks that put customers first, support the economy and manage risk sensibly, we could do worse than look to our European neighbours. I invite the Minister to publish the opposing evidence. Let us lay it out and have a discussion about the comparative views on the evidence underlying our public policy.