Abstract
The implicit social compact between the big British banks and the U.K. government broke down in the 1980s. Since then, the banks have sought to maximize shareholder value by closing less profitable branches, thereby reducing access to finance and increasing risk taking. Post-1990, the big banks also substantially increased their dependency on wholesale funding and dramatically reduced their liquid asset holdings, which increased their leverage and risk exposure. The U.K. government’s response to the financial crisis was to encourage mergers between banks, increasing concentration in the industry. The government bail-outs allowed the big banks to enjoy free insurance paid by taxpayers. The establishment of an autonomous retail banking (and insurance) utility regulator and a system for taxing the big banks fairly is recommended.
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Notes
That cost efficiency is achieved by one or a few providers exploiting economics of scale
Which involves exploiting monopoly power to increase revenue.
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Mullineux, A. The Public Duties and Social Responsibilities of Big British Banks. Int Adv Econ Res 17, 436–450 (2011). https://doi.org/10.1007/s11294-011-9319-y
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DOI: https://doi.org/10.1007/s11294-011-9319-y