Big banks: let's learn from Little Red Riding Hood

The most popular version of Little Red Riding Hood has the woodman storming into the Grandmother's house at the end of the story, killing the wicked wolf and slitting open his stomach - and, unharmed, out pops Little Red Riding Hood and her grandmother, none the worse for a bit of mild digestion.               

I've always wondered about this when I thought of Britain's dysfunctional and over-concentrated banking system, and the announcement yesterday about the rebirth of Trustee Savings Bank as a separate organisation rather confirms it.

Let me explain. In a flurry of consolidation, our banks wolfed each other down in the half century between 1870 and 1920 until there were just five left (and a few stragglers).

The culprit – probably more than the others – was Barclays, then known as Barclay, Bevan, Tritton, Ransom, Bouverie and Co, or in the City of London as the ‘long firm’. In 1896 they persuaded nine smaller banks to join them, mainly in the East and North, in a major enterprise to secure Barclays for the future.

This was a period when the middle classes were flocking to open bank accounts, just as the local banks which had served their forefathers disappeared month by month into the jaws of the City. 

By the outbreak of the First World War, Barclays had doubled their branches, mainly by the most frenetic merger activity, starting straight away with the Newcastle bank Woods & Co. Their biggest takeover was the Consolidated Bank of Cornwall in 1905, itself a recent merger of family banks. The most dramatic was the purchase of United Counties Bank, giving Barclays a major presence across the Midlands.

By 1918, even the government was worried about this merger mania, and appointed a committee of inquiry which urged it to legislate at once. Being the British government, it never quite got round to the task, and agreed to drop the idea of anti-trust legislation – which was bitterly opposed by the banks – on condition that there would be no more mergers between the big ones. 

Desperate to get under the wire, Barclay’s just had time to snap up the massive 601 branches of the London, Provincial and Western Bank. By 1920, they employed 11,000 clerks in 1,783 branches. There were now five big banks left standing: Midland, Westminster, Lloyds, Barclays and National Provincial (not the same Big Five of today, it is true).

It was already the most concentrated banking infrastructure in the world, and deeply conservative - one of the features of industries with no proper competition is conservatism, and so it was back then.  

Left-handed people were banned from bank staff, at least in Barclays. Women were dismissed when they got married. Board minutes were still written by hand. In Barclays, ledger clerks were issued with special ink designed to clog any new fountain pens, which the banking oligarchy disapproved of. 

In Manchester, banks were still transferring cash across the city using the last horse-drawn cabs as late as 1940.

Now our banks have their attentions elsewhere, and take their domestic banking customers staggeringly for granted - as you would expect where there is no competition.  They were allowed to swallow the competition, just as - only a decade ago - they swallowed most of the building societies.

So here is the question, and I asked it with more explanation and anecdote in my new book Broke (because the failing banking infrastructure is complicit in the demise of traditional middle class values) - do these forgotten banks still exist inside the belly of the wolves?

I know, it is true, that the branches being liberated by Lloyds are not the original TSB branches - most of them are former Cheltenham & Gloucester Building Society branches.  It is also true that the new TSB will have to develop the skills required for local lending which have atrophied inside Lloyds.

But it is a start.  Now what we have to do is to have the guts to act like the woodcutter in the tale of Little Red Riding Hood. 

Round up the big bad wolves of banking, slit open their stomachs, and let the institutions we need come back out again into the light – the Woolwich (inside Barclays), Bristol & West (inside Bank of Ireland), Halifax (inside Lloyds), Girobank (Santander), Williams & Glyn’s (Royal Bank of Scotland), Martin’s (Barclays), Birmingham Municipal Savings Bank (Lloyds). And so on and so on.