German banks, British lessons

Britain's sprawling giants aren't the best way to run a banking system

Since the financial crisis in 2009, a blame-game has raged between Britain’s large banks on the one side, and British politicians and businesses on the other. Last year, the Government launched "Project Merlin", warning the banks that a failure to meet lending targets would be met with reprisals. When it later transpired that the banks had missed the target for lending to SMEs, the Federation of Small Businesses said that the project had "failed". The banks replied that "the business demand for credit remains weak" and the Government sat on the fence protesting that "it's going to take some time before the banking sector is back to normal".

Businesses argue that the banks aren’t lending; the banks retort that businesses don’t want to borrow. The problem with the entire debate is that it ignores the real issue: why does Britain have to rely on banks that were crippled by the crisis?

That banks aren’t lending is not disputed: Bank of England figures show that total lending to businesses, not including property lending or to financial firms, fell by 11 per cent between 2008 and 2010 and the evidence since then suggests it has continued to fall. While some of this can be attributed to falling demand, more important is the fact that Britain’s large banks are rebuilding their tattered balance sheets by cutting credit. In a more competitive market, rivals would step in and capitalise on the weakness of the embattled institutions; unfortunately for the UK’s businesses, Britain’s banking market is far from competitive.

If only they were based in Stuttgart rather than Stockport. German businesses do not face the same hurdles in accessing credit as their British counterparts because they are served by a far more diverse and competitive banking system. In Germany, commercial banks, such as Deutsche Bank and Commerzbank, compete with a large cooperative banking sector and, more importantly, a large local savings bank sector. In 2011, total loans by the savings banks or Sparkassen stood at €322 billion whereas the total loan stock of Germany’s large commercial banks was only €177 billion. Like Britain’s large banks, Germany’s large commercial banks cut credit during the financial crisis; lending fell by 10 per cent between 2006 and the middle of 2011. In contrast, the Sparkassen increased lending by 17 per cent and continue to do so; when their competitors were flagging they cleaned up.

If it were not seriously hampering the British economy it would be amusing to reflect upon the irony that Germany and its social market possessed a far more efficient and competitive banking system than Britain, birthplace of laissez-faire capitalism. It is also interesting that the Sparkassen, who currently have the edge, were once derided as uncompetitive and inefficient. The Sparkassen are governed by Federal and state law in Germany. According to the Banking Act of the Federal Republic of Germany they must restrict their activities to their local area. Furthermore, profit is not the main purpose of their business; rather their success is tied to that of their local economy. These restrictions were once viewed as anachronistic and antithetical to an efficient market economy and for years the Sparkassen were forced to fend off attacks from the European Commission and Germany’s commercial banks.

Representatives of the banks often muse that the financial crisis saved them: their local focus and commitment to local businesses re-emphasized the contribution they make to the stability and prosperity of the German economy.

British businesses and consumers perhaps hope that the crisis will produce a similar epiphany amongst British policy-makers. The Government needs to remove the significant regulatory barriers that hamper new entrants, encourage entrepreneurial local authorities that wish to institute local banks in their communities, and support credit unions as they look to use their new powers to compete with commercial banks. These are all steps that must be taken if a more competitive and diverse banking sector is to be created, but first we need to take a good look at what’s going on beyond the Rhine.

Credit cards for a Sparkasse. Photograph: Getty Images

Selling Circuits Short: Improving the prospects of the British electronics industry by Stephen L. Clarke and Georgia Plank was released yesterday by Civitas. It is available on PDF and Amazon Kindle

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No, Jeremy Corbyn did not refuse to condemn the IRA. Please stop saying he did

Guys, seriously.

Okay, I’ll bite. Someone’s gotta say it, so really might as well be me:

No, Jeremy Corbyn did not, this weekend, refuse to condemn the IRA. And no, his choice of words was not just “and all other forms of racism” all over again.

Can’t wait to read my mentions after this one.

Let’s take the two contentions there in order. The claim that Corbyn refused to condem the IRA relates to his appearance on Sky’s Sophy Ridge on Sunday programme yesterday. (For those who haven’t had the pleasure, it’s a weekly political programme, hosted by Sophy Ridge and broadcast on a Sunday. Don’t say I never teach you anything.)

Here’s how Sky’s website reported that interview:

 

The first paragraph of that story reads:

Labour leader Jeremy Corbyn has been criticised after he refused five times to directly condemn the IRA in an interview with Sky News.

The funny thing is, though, that the third paragraph of that story is this:

He said: “I condemn all the bombing by both the loyalists and the IRA.”

Apparently Jeremy Corbyn has been so widely criticised for refusing to condemn the IRA that people didn’t notice the bit where he specifically said that he condemned the IRA.

Hasn’t he done this before, though? Corbyn’s inability to say he that opposed anti-semitism without appending “and all other forms of racism” was widely – and, to my mind, rightly – criticised. These were weasel words, people argued: an attempt to deflect from a narrow subject where the hard left has often been in the wrong, to a broader one where it wasn’t.

Well, that pissed me off too: an inability to say simply “I oppose anti-semitism” made it look like he did not really think anti-semitism was that big a problem, an impression not relieved by, well, take your pick.

But no, to my mind, this....

“I condemn all the bombing by both the loyalists and the IRA.”

...is, despite its obvious structural similarities, not the same thing.

That’s because the “all other forms of racism thing” is an attempt to distract by bringing in something un-related. It implies that you can’t possibly be soft on anti-semitism if you were tough on Islamophobia or apartheid, and experience shows that simply isn’t true.

But loyalist bombing were not unrelated to IRA ones: they’re very related indeed. There really were atrocities committed on both sides of the Troubles, and while the fatalities were not numerically balanced, neither were they orders of magnitude apart.

As a result, specifically condemning both sides as Corbyn did seems like an entirely reasonable position to take. Far creepier, indeed, is to minimise one set of atrocities to score political points about something else entirely.

The point I’m making here isn’t really about Corbyn at all. Historically, his position on Northern Ireland has been pro-Republican, rather than pro-peace, and I’d be lying if I said I was entirely comfortable with that.

No, the point I’m making is about the media, and its bias against Labour. Whatever he may have said in the past, whatever may be written on his heart, yesterday morning Jeremy Corbyn condemned IRA bombings. This was the correct thing to do. His words were nonetheless reported as “Jeremy Corbyn refuses to condemn IRA”.

I mean, I don’t generally hold with blaming the mainstream media for politicians’ failures, but it’s a bit rum isn’t it?

Jonn Elledge edits the New Statesman's sister site CityMetric, and writes for the NS about subjects including politics, history and Daniel Hannan. You can find him on Twitter or Facebook.

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