Should The Government Re-Mutualise Northern Rock?

Northern Rock, which was one of the first casualties of the financial crisis, had been popularly demutualised in 1997. Its downfall was that it was nationalised in early 2008 after customers queued round the block to withdraw cash which brought the bank to the edge of collapse ' and this threatened many more. Its shares had become virtually worthless.

On the 16 Mar 2011 Gareth Thomas MP (Lab, Harrow West) raised the question about the re-mutualisation of Northern Rock at Prime Minister's Questions in the House of Commons by stating that he believed that, had Northern Rock remained a mutual it would not have got into so much trouble.

David Cameron's response, whilst making no specific comment on the case and offering no commitment, was interesting. He spoke of a desire, more generally, to spread the spirit of mutuals "much further than the banking industry" into other areas so giving people involved in those areas a far greater sense of involvement. As for the question he supported the idea of the link between mutualisation and responsibility "restoring the link between taking deposits and providing loans...".

This is in accord with an earlier written answer which said...

"On the financial health of friendly societies, despite the challenges faced by much of the wider financial sector, most mutuals have emerged from the financial crisis relatively unscathed. The Government support the mutual proposition of which friendly societies are one part, however, they also recognise some specific challenges this model will face over the coming years."

Is there any evidence to support the notion that there is any benefit of the type that both Gareth Thomas and David Cameron alluded to in the banking sector particularly?

Well, there now is. A recently conducted, UK-wide, survey of retail banking customers to understand the issues, good and bad, that make up the customer experience has that evidence. This Vox Populi survey's results include a measure of this experience called the CEI (Customer Engagement Index). Respondents were also invited to give structured,free text, feedback at three levels called verbatims: what they like about their bank and tell others, what their bank could do to improve, and where their bank is failing to meet their needs.

Significantly, of the 17 banks surveyed, Nationwide (still a mutual society) gained the highest CEI (77%) by a good margin. In the verbatims from its customers it is clear that the continuing mutuality of Nationwide is perceived to be an important factor in this score. By implication, Northern Rock might be more like Nationwide today had it retained its mutuality.

The Bank of England's Mervyn King saying only last weekend that he thinks banks "don't really care about customer relationships", and the movement to urge that retail banking should be separated from investment banking mean that the timing of this survey couldn't be more relevant.

The current model of banking has become far too bank-centric - "we know what you need and you come and ask us for it" is felt by many to be the bank's prevailing attitude. But do the banks really know and 'get the message', even with their customer surveys? The evidence is not favourable.

The new model for retail banking has to be customer-centric. Customers are better informed than ever, customers are more knowledgeable, customers are changing. They will express their feelings in many ways - especially if they think their banks are not reacting. Some feedback goes directly to bank employees, and some goes via the new media which provides a very public forum - and can be very damaging.

There are obviously some very important messages for bankers involved in providing services to the general public contained in the data from this survey. It should be compulsory reading.

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