Like a pillion passenger leaning in the opposite direction to the rider, UK banks’ behaviour has become perverse and dangerous. Banks are engaged in an elaborate risk management exercise that seeks to enhance their profitability, defend their reputation, and conserve their capital. Their role as universal credit providers to individuals and non-financial businesses is being increasingly subordinated to these other considerations. Their willingness to withdraw from the marketplace – in terms of physical footprint, product range and customer profile – is symptomatic of their reordered priorities. Armed with real-time information on the profitability of customer accounts, banks are penalising customer inertia, alias loyalty, and tightening the qualifying criteria for keeping an account open. Above all, they have a heightened aversion to loan losses.

An examination of the chart for UK banks’ loan write-offs betrays no evidence of a pandemic, nor that much of the economy was paralysed for months on end. The banks have passed the bill for Covid-related loan losses to the taxpayer. Remarkably, banks’ total write-offs have fallen from a £5 billion annual rate in 2019 to little more than £3 billion in the year to the first quarter of 2023 (Figure 1).

Figure 1