Magazine article The Spectator

It's Time We Bank Customers Started Talking to Each Other in the Queue

Magazine article The Spectator

It's Time We Bank Customers Started Talking to Each Other in the Queue

Article excerpt

I've been interested in informal banking ever since, frustrated in a long Lloyds bank queue in the West End, I persuaded some American tourists queuing with me to exchange their dollars for my pounds at the rate of interest marked on the notice board. No customer is an island, as John Donne did not quite remark.

But today, when it comes to depositing funds and borrowing funds, our financial institutions are acting as though we customers were indeed islands. It's time we started talking to each other in the queue.

Banks and building societies assume that they alone can make the link between those with money and those in need of money, taking their cut. But if they are too averse to risk, and take too big a cut, they should beware.

The customer is capable - if the inducement grows - of learning new habits of unmediated financial intercourse.

The temptations to cut out the middle man have never been stronger. If you were an individual in search of a loan today, and you knew anyone with money who trusted you, why would you go to a bank? And if you were an individual in search of a reasonable return on your savings, and you knew somebody you trusted who needed a loan, why would you go to a bank?

Two preconditions now exist - and look like persisting - for the very considerable expansion of the informal lending-and-borrowing sector of the economy: for borrowers and depositors, that is, willing to bypass the go-between of the banking industry and deal with each other directly. First, those in search of personal or small-business capital are finding it difficult to borrow except at rates of interest wildly in excess of the minimum lending rate set by the Bank of England. Second, those in search of a home for their savings that will even maintain (let alone enhance) their real-terms value are hard-put to find it.

It seems obvious to me that this must soon lead to a weakening of the British habit of mind that assumes these transactions are best done via a bank or building society. With interest rates and inflation where they are, it is now irrational for most people to lend to or borrow from a bank, unless they don't have any friends. Yet I see remarkably little discussion (at least in the pages of the media that ordinary citizens read) of the important underlying logic implied by three of today's financial numbers: the rate banks charge to lenders; the rate banks pay to savers; and the rate of inflation.

It is this that tempts me - a stranger to the financial pages - into an area I know little about. Financial boffins will have sensed this already from my clumsy vocabulary; and it's unlikely I shall finish this column without committing many howlers. Martin Vander Weyer has probably already tut-tutted and turned the page. But I take a tilt because whenever I raise this argument with City types, they say things like 'Hm. Yes. You have a point. It may be happening. I don't know.'

Then they move on.

Well, is it happening? To some degree, of course, it always has. That families and friends should help each other out with loans is hardly new. Whether or not tax is due on interest received from such lending, I suspect that many people would suppose it wasn't; and many more would calculate that if it's informal, nobody will find out: a further inducement to sidestep the banks. …

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