The Bank should help challengers to beat rate-cut drag

RBS’s warning that it may start to charge businesses for depositing money in its vaults and Virgin Money’s decision to put off launching services for small businesses signal that we are entering a new era for banking.

With the likelihood of an interest rate cut by the Bank of England next month almost inevitable, banks are preparing for low rates for a long time. In essence, that means businesses which were profitable for them will become less profitable or even unprofitable.

Ironically RBS’s ownership, 72% owned by the taxpayer, may be the reason it has moved first. It can tell it as it is, that it costs more to look after businesses’ cash than it can make on the deposits generated. It may be a different matter if it starts

Nick Goodway

trying to do that with retail customers though.

Virgin’s decision likewise makes sense in that branching into a new area of business at a time when the economy is uncertain would be unwise.

But we now have a conflict between the desire from Government and the Bank of England to create more challenger banks to offer other options to the Big Five and the need to adjust policy to stimulate a faltering economy.

That means it is imperative that the Bank looks at other ways of making life easier for challenger banks. Brexit means we can start to ignore EU banking rules, which in turn means the Bank could lower capital ratios for smaller banks and allow them to lend more against their capital.

It’s good to talk

SHARON White again has not pushed the nuclear button forcing BT to sell Openreach, as most of the telecoms giant’s rivals had wanted.

Cue wailing and gnashing of teeth from Sky, Vodafone and talktalk.

But look at the detail of today’s statement and White has actually forced BT to shift massively in the 16 months she has been in charge of Ofcom. What she proposes today and what BT has accepted or counter-proposed will create a very different Openreach.

It will be accountable to the public, accountable to its major customers who are BT’s rivals and should be able to invest even more in the infrastructure the country needs for a strong digital future. We will get faster broadband.

My estimate is Ofcom and BT are 85% in agreement and could be nearer 95% by the time October’s next deadline comes around.

The fact is BT’s £10 billion pension deficit, much of which applies to retired Openreach engineers, was always going to prevent the nuclear option.

Jaw-jaw has proved better than war-war. @NickGoodway