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The Bank of England’s recipe for managed decline

The central bank’s new ideas for how to modernize Britain’s financial system could eat into banks’ revenues, while helping them cut costs. For the wider economy, Brexit will still smother the intended fillip to small-business exporters.


In any legal business, the ability to operate is at the discretion of the government. This is particularly true in banking, where a licence has traditionally been akin to a financial system sinecure.

Now, ultra-low and negative central bank interest rates in Europe have cut or removed the profit banks used to make from attracting deposits at low or zero rates just by placing them at the central bank. 

At the same time, since the crisis, the state has imposed on banks all manner of new and more onerous requirements around capital and customer verification, while making it much harder to boost their profits through opaque loan and savings products.   

Rates, regulation and fintech competition are already pushing big banks to become more efficient. More radical reform could be risky

Given these difficulties, the news that the Bank of England (BoE) could open up its balance sheet to non-bank financial technology companies, which would give them access to the central bank’s reserve accounts, looks like a fundamental removal of the privileges on which banking was built. 

The UK, after all, has already allowed five non-bank payment service providers to use its payments architecture in the past couple of years, and a further 20 hope to do so in the future.

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