Virgin Money appears before Treasury Select Committee
Jayne-Anne Gadhia calls for greater transparency and diversity in UK banking sector.
Jayne-Anne Gadhia, Chief Executive of Virgin Money, appeared in front of the Treasury Select Committee on 18 January 2011.
Speaking on the issue of ‘Competition and Choice in the Banking Sector', Jayne-Anne Gadhia commented that the UK's largest banks operated as an oligopoly and stated that customers were often treated poorly by the big banks. She argued that there were four main barriers to entry – the oligopoly of the big banks, products, capital requirements and acquisition.
With the big five banks in the UK holding over 90% of the current account market, Jayne-Anne said that ‘It is extremely important that competition is introduced into the system to build trust and improve financial stability.' Customers stayed with their bank out of ‘brand loyalty' she added. With only 5% of customers switching their banks each year she argued the need for further diversity within the banking sector.
Speaking to the Treasury Select Committee, Jayne-Anne Gadhia also questioned why the current banking system did not allow customers to easily transfer their account from one provider to another. “If we can give everybody a national insurance number, and we have done that for decades, we should be able to change people's bank accounts.”
While the Virgin Money Chief Executive claimed that other banks were reluctant to implement a system because of the costs, she argued that it could revolutionise the banking system, and provide increased transparency for customers.
She added: “I really don't think there's any such thing as free banking. I really do believe that customers need more transparent disclosure about how current accounts work, and I believe that we should make it much easier for customers to move accounts than is currently perceived and is actually the case.”
To further increase transparency and to boost consumer confidence, Jayne-Anne suggested the separation of the balance sheets of retail and investment banks. Ring-fencing the two balance sheets would separate risk and help customers feel safer in the knowledge that their personal finances would not be used on the investment markets to maximise bank revenue, she argued. While this move was mentioned by one of the members of the committee as ‘extreme' Jayne-Anne replied that “the extreme problems we have had require some extreme solutions.”
By requiring the bigger banks to hold more capital against their systemic risk this would help to further increase competition and level the playing field within the banking sector.
Discussing the sale of the 318 RBS branches to Santander in 2010, Jayne-Anne admitted that it was a ‘lost opportunity' to break the hold of the big five banks. “If we're serious about competition and using acquisition opportunities to enhance competition we should be applying a public interest test to make sure that those acquisitions are good for competition.”
The Virgin Money Chief Executive said that her overall ambition was to be the “fifth or sixth biggest bank in the UK and to attract customers, give them great service and great products and I want to be able to aspire to that objective,” but that the four issues highlighted were currently ‘a barrier to growth.'
< Back
