Tuesday, 3 April 2007

Is Britain A World Leader in Financial Services Provision?

A recently published report comparing Britain and Germany's banking systems cast dount on the claim that Britain is a world leader when it comes to financial services provision.

The report, "The British Banking System: A Good Role Model for Germany?" published by the Anglo-German Foundation for the Industrial Society and written by academics frm the Universities of Birmingham and Heidelberg, focuses particular attention on the levels of financial exclusion and over-indebtedness in the UK that have resulted from the demutualisation of building societies and an absence of proper regulation.

"there seem to be fewer problems with over-indebted households in Germany than in Britain. The more widespread use of credit cards in Britain could be responsible for this. Aggressive marketing of these cards as well as excessively high penalty charges to credit card users who pay late, or are unable to clear their balances, contribute to the problem of over-indebtedness. The punitive charging in Britain is indicative of much more widespread cross-subsidisation in the provision of current accounts – high-balance, low-volume users generally cross-subsidise low balance high volume users due to low deposit interest payments and low charges (for those who stay within authorised credit limits, with punitive charges for those who do not, or cannot).

The relatively high profitability of British banks in recent years may therefore owe much to exploitation of their ‘complex monopoly’ power. In contrast, the lower profitability of German banks is associated with a broader supply of financial services to small enterprises and low-income households. However, the Sparkassen (municipal savings banks) and co-operative banks, which are the most active banks in these market segments, have had an above average profitability in Germany. These findings should be borne in mind by advocates of increased concentration trying to shift the German system towards the British model.

Public sector and co-operative savings banks are no longer a significant force in Britain, and indeed the government has been encouraging the development of Community Development Financial Institutions (CDFIs) and credit unions to fill the gap. Advocates of privatisation of the German public savings bank should also bear this in mind."

No comments: