1 What problem is Ed Miliband trying to solve by capping RBS bonuses at 100% of salary?
In entirely predictable fashion, most big UK banks will seek to bypass the EU's 100%-of-salary bonus cap in two ways. First, they will ask shareholders to grant specific authority to extend the cap to 200%, as the EU law allows. Second, they will invent new ways of supplementing salaries and bonuses. Barclays, for example, is preparing to launch a monthly non-pensionable "allowance" that could be paid in cash or shares.
Many will regard the banks' reaction as an underhand or devious response to the EU rules. Fair point: few are generating returns that would justify, economically speaking, fat bonuses. But the design of the EU law was deeply flawed. It was inevitable that banks would react to a bonus cap by inflating salaries or dressing up payments in new clothes.
How would Miliband stop RBS doing exactly the same thing? If he succeeds in limiting bonus payments at RBS to 100% of salary, he may end up ensuring that every high-earner at the bank receives an increase in his or her fixed pay, or a payment that substitutes for a salary increase. Is he prepared to tolerate that? If not, how would he prevent it?
2 Why just RBS?
The state also owns 33% of Lloyds Banking Group. Why isn't Miliband arguing that those shares should also be voted against any attempt by management to secure a 200%-of-salary cap? The bonus problem is more acute at RBS since it runs an investment bank, albeit one smaller than it once was. But Lloyds will also have a few bankers expecting to collect big bonuses. Why isn't Labour applying its argument about bonuses, which it says flow from the "cost of living crisis," to Lloyds?
3 Why is 25% the right maximum for a bank's market share?
In the current account market, imposing a 25% maximum would not unleash a new wave of competitive forces. Lloyds, after the spin-off of 631 branches badged TSB (as ordered by the EU), will sit at 26%. The sale of another 50 or so would get Lloyds under 25%.
A more radical proposal to promote competition would see Lloyds ordered to sell Halifax, which is absurdly promoted as a "challenger" brand even though it sits within the UK's biggest banking organisation.
Ordering the sale of Halifax, though, would draw attention to the fact that the last Labour government, in the middle of the meltdown of parent firm HBOS, allowed (and perhaps encouraged) Lloyds' purchase. But liberating Halifax might be the right thing to do if Miliband is serious about promoting competition.
In the business banking market, RBS has a share of about 30%. But forcing a sale of assets to reduce that figure below 25% would probably damage the value of the state's 81% holding in RBS. If Miliband is prepared to accept that consequence (as perhaps he should in the interests of the long-term health of the UK economy) he should acknowledge there is a short-term cost.
He should also spell out how long the process of reshaping RBS might take. The bank's computer systems seem to have been such a mess that it has taken half a decade and £1bn to separate 300 branches, to be badged Williams & Glyn's, and get them into a position where they can be sold.
4 Why is he convinced that more regional banks are a good idea?
Regional banks tend to inspire warm feelings about the supposed good old days of banking, when lending decisions were made by branch managers with real authority and day-to-day knowledge of local businesses.
It does not necessarily work that way. Many German Landesbanks, in search of higher returns, disgraced themselves by rushing headlong into the US sub-prime mortgage crisis. Many troubled Spanish cajas were infected by cronyism. Local politicians demanded that loans be granted to their pet construction projects. Spain is still cleaning up the mess.
Note, too, that in the UK, Handlesbanken, the large Swedish bank that gets rave reviews from the Bank of England because of its local decision-making, runs a national network. On-the-spot lending decisions do not necessarily imply regional banks.
5 What evidence is there that customers want to switch banks?
The shadow Treasury secretary, Chris Leslie, speaking on the BBC Radio 4's Today programme on Wednesday morning, trotted out the standard statistic that we are more likely to get divorced than change bank account. The implication is that the UK public is crying out to change banks but is deterred by the hassle.
But a new system to allow seven-day switching, and minimise disruption with direct debits and standing orders, was introduced last year with a blitz of consumer advertising. Is Labour saying this reform, only four months old, has failed already? If so, what is the evidence?
