The decision by Lloyds to return the TSB brand to the high street could not have come at a more opportune moment.
What is not clear, however, is if it will be structured as a Plc, or, preferably, as a new kind of mutual. At a time when the leading high street banks are in the dog house, now is as good a time as any to return a top-class mutual bank to the high street that puts its members and account holders first.
It is early days yet, but let us reflect on those institutions that we like and the few that we often question why they still exist.
Why does an institution exist? What good does it serve? Why do we allow it to masquerade under a mutual flag of convenience when in reality it operates like the public sector in some banana republic.
The hearing now going on before the Treasury select committee about the aborted attempt by the Co-op Bank to buy the 630 or so branches ordered to be sold by the European Union is interesting in many ways.
So far, what we have heard, so good; but it soon became clear that the Co-op Bank was trying to punch above its weight, it wanted to fight out of its league.
It brings back memories of Northern Rock, a small regional mortgage bank that its over-ambitious chief executive wanted to catapult in to the big time, which in itself should have rung alarm bells.
In their evidence to the select committee, Antonio Horta-Osorio, Lloyds TSB Group’s chief executive, and Sir Winfried Bischoff, its chairman, said they had doubts about the Co-op Bank’s ability to raise the necessary funds to make the purchase.
Of course, this raises questions as to why part government-owned Lloyds TSB Group favoured the Co-op as the preferred buyer, rather than any of its other rivals, three who submitted bids, and 42 in total who had expressed an interest.
Former Co-op Bank chief executive Neville Richardson, who joined from the troubled Britannia Building Society, which was merged in to the Co-op Bank, said he had his doubts.
According to Mr Richardson, allegations that the debt burden brought in to the Co-op from Britannia was mainly responsible for its financial troubles were wide of the mark.
The reason, he told the select committee, was that the Co-op Group then chief executive, Peter Marks, was putting senior bank executives under enormous pressure to introduce “change programmes”, or in simple language, to hit the big time.
It was his objection to the group chief executive’s demands that led eventually to his departure.
What is still not clear is where was the City regulator when all this was going on? Who at the City regulator had supervisory oversight of the Co-op Bank, and in particular the proposed take over of the Lloyds TSB high street branches?
Did anyone ask questions when Mr Richardson unexpectedly took his bags and left? Did he share his concerns with the FCA in confidence or in a letter of resignation copied to the regulator?
This has a whiff of the scent that followed the Northern Rock debacle, none more so than having a senior official sitting in on a Northern Rock meeting at which key issues were discussed.
There is a regulatory myopia that can sometimes be puzzling. Since 2008/9, we have seen a number of regulatory changes, the most important of which has been the retail distribution review.
But, very little is said about supervision, in particular of the big behemoths of the financial sector.
The incompetent supervision of the Co-op Bank, especially its careless attempt to punch above its weight by increasing its high street presence, is a clear indication that the FSA (as was) failed to learn anything of substance from the Northern Rock troubles.
We know, for example, that Lloyds TSB had its doubts about the Co-op Bank in the early stages of due diligence and questioned them about it.
There is no institutional historical memory, no one to point out to recent recruits that similar mistakes happened years ago.Either this was ignored by the FSA, they were not aware of the £1.5bn black hole in the Co-op’s finances, or technically it was beyond the regulator’s competence.
Part of this is regulatory seepage, the rapid turnover of middle ranking and junior staff, the very people who do the heavy lifting.
So, in effect, what we get is the circulation of mediocrity, people supervising and silo managing with learner plates on.
There is no institutional historical memory, no one to point out to recent recruits that similar mistakes happened years ago.
In the final analysis, the post-mortem about the Co-op Bank is important only in the sense that regulatory and supervisory lessons must be learnt.
Other than that, the Co-op Bank must be put to death with as much grace as we can muster as its survival will just be a reminder of bad banking practices.
After all, it is not systemically important, it does not serve any useful purpose to its commercial or retail customers, quite often treating some of them rather badly, and its footprint is insignificant.
With the re-introduction of the popular TSB brand in the high street, it will be competing in the same space that an ethically strong Co-op Bank ought to be.
If so, then there is very little room for a revived Co-op Bank and the best the regulators and its account holders could do is to gently put the troubled bank to rest.
Hal Austin is Editor of Financial Adviser
