MPs Gareth Thomas and Chris Leslie set out their wish list for greater transparency in the banking sector, including more space for credit unions
Forcing banks to be more open and transparent about their lending, their customers and their level of risk will help transform their culture and governance and begin to tackle the sense of disconnect with the British people.
Yet, just as George Osborne and David Cameron are watering down key parts of the Vickers commission's proposals, so ministers seem determined to let the banks continue to hide important details of their local record.
Bank lending has dropped every month since the coalition came to power and too many people either still do not having a bank account or face higher prices for loans. We need to create incentives for greater competition to provide financial services across all communities. Expanding the reach of credit unions and community 'banks' and encouraging stronger relationships with mainstream banks will be essential, but would be easier to achieve if high street banks disclosed more of their key data.
Despite all the websites offering comparisons of banks' products, the Centre for Responsible Credit has highlighted how little data banks actually release about their lending – to both businesses and personal customers.
Information about lending to small businesses and third sector organisations at neighbourhood level or by postcode, as well as statistics about deposits, is not routinely available in the UK, even though much of this information held by banks.
Similarly, details of where to find free-to-use cash machines, the levels of fees for unpaid direct debits, and overdraft and credit card charges are not available in a standardised format. Publishing this data would foster competition by allowing better comparisons to be made between banks' services. It would reveal the differing levels of access to financial products for businesses and individuals in particular communities and would also help to ensure policy makers can better direct support to small and medium sized enterprises (SMEs) and tackle poverty and financial exclusion.
Customers also need stronger information about the fees and charges they pay if they move their accounts. Hidden charges and surprise penalties create scepticism among customers, many of whom feel aggrieved at incurring more costs after years of loyalty to their bank.
Banks should also open up to scrutiny their internal policies on managing the risks around their investment and interest rate setting decisions. After recent scandals we need to be able to see what bank staff are expected to do when they have important decisions to make on how to use the money we invest with them.
The need for more openness has long been accepted in the United States, where the financial services community now routinely discloses what banks lend, where, and to whom – albeit in anonymised form. This has encouraged the emergence of alternative financial institutions, such as credit unions and community banks, which can provide vigorous competition in the places where traditional bank lending has been weak.
Britain's major banks are global leaders and a vital source of domestic jobs and tax revenues. Greater openness will be part of the solution for reconnecting capital to place and for rebuilding the relationship between banks and their customers, whose savings and investments help provide the capital for lenders to do business around the world.
The banks are not always wrong to reject applications for loans. But there are too many tales of reasonable requests being turned down, of staff in remote locations rejecting applications and of the closure of bank branches that once provided serious advice.
We need consistent disclosure of anonymised data on what banks lend, to whom and in which parts of the country. Stronger incentives for major banks to work in all communities, including with community lenders and credit unions, will help them to be more accountable to the communities they serve. Over time it will help to plug the gaps in the market for access to financial products and improve customer services.
Having benefitted from around £1tn of capital and guarantees, greater transparency among the banks is a must-have for customers.
Gareth Thomas is MP for Harrow West and shadow minister for civil society. Chris Leslie is MP for Nottingham East and shadow financial secretary to the Treasury
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