Cover of MoneyWeek magazine issue no 534

No more money

22 April 2011 / Issue 534

The end of quantitative easing

PLUS:

  • Is the commodities boom about to peak?
  • Profit from soaring oil – invest in public transport
  • How to be a better trader – cheer up

Excerpt

Let’s break the bank cartel


The most popular blog post I’ve ever written on this website was about bonuses and the ongoing question of why bankers get paid so much. Bankers like to think it is because they are uniquely talented. But the reason is simply that the money is there: bankers get paid millions because banks make billions. So the real question is: how do banks make so much money so consistently?

The answer? Because they operate much like a cartel. They charge extraordinary rates for everything from investment banking to overdrafts. And they all do it in much the same way. Just look at the overdraft rates charged by the big-name banks: those who still charge via a traditional interest rate, rather than the new and rapacious set fee system, all charge 19%-20%. Remarkably similar.

Then there is the Payment Protection Insurance business: in a competitive system one bank might have broken ranks, cutting prices or even telling customers their rivals weren’t telling the whole truth about it. Instead, all the banks mis-sold it for years – at vast profit. They’ve been caught out on that one: this week a High Court judgement suggested they will have to compensate millions of people. But I daresay that even as you read, they are thinking up a new wheeze to replace the lost profits.

So why don’t banking clients do something about it?

• Read the full editor’s letter here: Let’s break the bank cartel


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