How UK banks went from Big Bang to universal failure

The 1986 deregulation shook up the banks, but the all-in-one model that it created is bad for customers and investors. Specialists do a better job – as the real fintech winners are showing, says Bruce Packard

Cover illustration - old world finance vs fintech upstart

It all started with the Big Bang in 1986. That was Margaret Thatcher’s attempt to shake up the cosy relationships in the City of London and build a globally competitive financial services industry of which the country could be proud. The old separation between brokers and jobbers (market makers), and between retail and investment banking, were dismantled and cleared away – without much consideration of whether there were sound reasons for these divisions to exist, like Chesterton’s Fences.

Retail banks such as Lloyds, Barclays and Midland were allowed, if not encouraged, to own stockbroking firms. The likes of de Zoete Wedd, Hill Samuel and Samuel Montagu were bought by UK retail banks. Other brokers such as Phillips & Drew, Warburg’s and Smith New Court were bought by large investment banks from overseas. UK banks expanded into new territories and built empires where the sun never set. Banks attracted a new breed of rocket scientists and physicists to help them price complex derivatives. A new model emerged: “universal banking”, implying a bank could do everything under one roof. London became a centre of global financial competition.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up
Explore More
Bruce Packard
Contributor

Bruce is a self-invested, low-frequency, buy-and-hold investor focused on quality. A former equity analyst, specialising in UK banks, Bruce now writes for MoneyWeek and Sharepad. He also does his own investing, and enjoy beach volleyball in my spare time. Bruce co-hosts the Investors' Roundtable Podcast with Roland Head, Mark Simpson and Maynard Paton.