Simon English: If our banks are in the top 10, that must mean trouble

A disaster from the world of banking. Foreign banks are getting bigger faster than ours. We’re slipping down league tables. Even the French, supposed to be useless at banking, are making inroads into a trade that is rightfully ours.

Well, that’s the story.

The annual state-of-play survey from excellent industry publication The Banker offers a gloomy assessment.

It says UK banks made only $17.3 billion (£13.3 billion) in profits last year, down 32%. French banks made $39.6 billion in profits. Which presumably signifies that they are “better”. There’s no analysis in the release of the quality or sustainability of the profits. They are just higher.

The Banker’s estimable editor Brian Caplen says Brexit is to blame for the banks’ woes. (The fall in profits is largely down to The Banker reporting them in dollars, which is up because of Brexit, which may not in itself matter that much).

He worries that Britain has “lost our historic place as a country that punches above its weight in finance”. I think Caplen and others in the City who make the same case are worrying about the wrong things. And that when it comes to banking, “punching above our weight” usually turns out to mean “dangerously overexposed to imminent disaster”.

The Banker makes the point that in 2007, the UK was the third-biggest banking sector in the world, and now it is a mere 10th. It never made sense for us to be that big in the first place. It wasn’t some natural state of affairs that has been cruelly undermined by sneaky foreigners and foolish policymakers.

It did not make sense for Royal Bank of Scotland to be, briefly, the biggest bank in the world with a balance sheet more prodigious than the entire UK economy. If a country’s main claim to business fame is that it is home to some of the biggest banks in the world, that’s no claim at all. That’s a flashing red light.

The high placing in 2007 was surely a function of our banks getting too big, of over-leveraging in the pursuit of short-term returns. When the crash came, they blew up, we paid the price (and still are).

Bankers tend to think that the rest of us should somehow take pleasure in the pre-eminence of the City of London, see it as a source of patriotic pride. I like a lot about the place, and some of the people, but it’s supposed to be functional, to serve purposes, not to be a delight in itself. When it sees itself as something other than an aid to business, that’s when trouble starts.

Only one “UK” bank, HSBC, makes The Banker’s top 10 list, scraping in at number nine. The rest are, rightly, American and Chinese with one Japanese firm also nudging in. So what?

A table I prefer is the top 10 list of banks’ losses. We only have one bank in that list, too — the inevitable RBS. The other loser banks are all nutty eurozone lenders — the place to where our banking business is supposedly defecting.

An alternative view to the gloom from The Banker is this: Our banks are in fine fettle and there has never been so much healthy competition. If profits are down, well, good.

In retail banking, challengers such as Metro Bank are racing up the charts. In the City, newly invigorated smaller players such as Panmure Gordon are getting ready to take on the big boys.

A small number of big banks snaffling all the trade isn’t good for anyone but the top staff of said big banks.

The truth about gigantic banks is this: they are a thoroughgoing menace, a danger to all of us.

They are too big to fail, and more-over too big to manage. It is impossible for boards to keep track of what is happening in their own companies, which is why disasters keep emerging that they admit they simply did not foresee.

The more of such entities that are over there and not over here, the better. Let the small fry go for it.