Thursday, 5 July 2012

Bad service from the banks? Then wave goodbye.

It's been a bad week for the banks. Just when we thought the reputation of the big banks could go no lower, a series of catastrophes brought at least two of the UK's big four to a serious crisis over the last two weeks.

It started last week. RBS, which owns NatWest and Ulster Bank, suffered a software failure, meaning that customers (and you may well be one of them) found themselves unable to access funds in their own bank accounts, although direct debit and standing order payments were being processed as normal.

These issues have created huge problems for the customers of the three banks. For many, it has been only an inconvenience, but for others, the loss of access to their funds has come at a critical time, such as in the middle of a house purchase.

Currently, ten days after the problems emerged, RBS and NatWest customers are now back to a normal service, but problems with Ulster Bank accounts are expected to persist until the middle of the week.

We know that RBS suffered perhaps more than any other UK bank during the banking crisis of 2008-09. Without an 83% nationalisation, the company would no longer be in existence. Hundreds of staff were made redundant and this may have exacerbated the bank's recent troubles.

On Tuesday, Barclays Bank suffered what could become an even bigger problem, with an element of scandal thrown in. It emerged that several of its traders had been rigging the key Libor interest rates during the period 2005-2009. Libor is the rate at which banks can borrow money from each other. Barclays traders, it has been reported, rigged the rate value in two different ways: firstly they increased Libor when other banks were borrowing from Barclays to increase their own profits; secondly they reduced it at times to give the appearance that Barclays was able to borrow money at a lower rate than was really available, hence giving a false impression that the bank was considered healthier than it may have been.

There will be a colossal fine for Barclays of £300 million. The Chief Executive, Bob Diamond, has so far refused to resign. Critics would point out that he is either corrupt if he sanctioned or turned a blind eye to these practices, or negligent and incompetent if he did not know.

The Financial Services Authority's investigations are not complete and there appears to be a real possibility that traders at the other big banks were conducting the same illicit practices.

At best, these two problems of enormous proportion will remain merely hugely expensive mistakes. At worst, there is the real possibility that either, or both, could bring the very future of these two banking behemoths into peril.

On Friday, a third scandal emerged. The Financial Services Authority revealed that Barclays, HSBC, RBS and Lloyds had agreed to pay compensation to customers who were mis-sold interest rate hedging products.

The fine for Barclays is enormous, but compensation payments related to all three of these catastrophes could dwarf any fine. On the back of compensation payments for the recent Payment Protection Insurance mis-selling, the big banks appear to be developing some very bad habits and paying out very large sums when found out. If it is not impossible that the recent scandals could bring one of the banks into serious financial difficulties.

The banks have let us down very badly, everybody would agree with that. In the banking collapse a few years ago, every UK citizen stumped up several thousand pounds in taxes to bail the banks out. Since then we have had the payment protection racket, rogue traders losing billions in single transactions, rigged interest rates, loss of access to our money and now a new mis-selling scandal. If these were ordinary companies, they would have ceased trading a long time ago.

Last year, I changed my bank account for the first time. I had been with one of the UK's big four banks all of my working life. Now I am with Co-op Bank, which to the best of my knowledge, has not been involved in any scandals, is mutually owned, does not have an investment banking division and tries to conduct all of its affairs on ethical grounds.

This is not an advert for Co-op Bank. But if our big banks continue to behave in such an egregious fashion, and if regulation appears to be lax enough to allow it, then there is only one sensible course of action: the customers must vote with their money. Move it somewhere you trust, you respect and that gives you good, simple service without any huge, costly blunders.

It is often said that people change their spouse more often than their current account. Now is the time that this should change.

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