It’s hard to believe that it’s already been three years since the meltdown of our economy and the subsequent bank bail out. Yet today, well over 1000 days later, we still find ourselves in the midst of a crisis that threatens to bankrupt a handful of European countries and dramatically change our economic structure for the foreseeable future.

Japanese consumers took it slow in the 90's, as their economy saw little growth

While the bail out sured up the banking sector and gave investors confidence, it did little to increase consumer confidence or reduce future unemployment rates, in the same way that refunding PPI payments has done little to increase it’s popularity. But it must be said that we’re not at risk of collapse, we may face a 90′s Japan-esque decade of very low growth, but it’s still growth and there’s very little chance of things going the way of Greece or Italy.

The problem, that’s been well highlighted, is our economy’s dependence on the banking sector instead of more reliable (but less glamorous) industries such as manufacturing and exporting physical goods. The Office of National Statistics (ONS) ‘Blue Book’ reports that the financial sector accounted for 31.9% of Gross Value Added (GVA) to the British economy, yet in size it only makes up 5.1% of it.

The Banking sector is small in size but unmatched in economic contribution

The result is a financial sector that employs few people and produces nothing that can be bought by other countries but contributes massive tax receipts. The major problem is that, unlike Germany who’s Mittelstand makes niche items of a high quality that will always be in demand somewhere in the world, our banking sector can collapse simply due to a lack of confidence.

But, that’s our bed so to speak and unless we have a radical rethink on the structure of our economy; we’ll be sleeping in it for a while yet. So, with the banking sector (and our economy) still in need of protection, David Cameron made a decision on Friday to go against a new EU proposal to place bank charges on financial transactions that could see financial institutions upsticks and leave the City.

Cameron veto'd the FTT in Brussels on Friday

The new Financial Transaction Tax (FTT) would be a tax on every purchase or sale of stocks or bonds or whatever financial product by a bank. Like any tax, if we all pay then it’s fair, but the problem is 75% of the total tax paid through FTT would be paid by banks located in the UK. This would leave banks with no real incentive to base themselves in the City of London and could see them leave, taking huge tax payments with them and damaging our economy.

That’s why Cameron veto’d it, but he’s going to have to explain himself to his right, sorry, left-hand man, Nick Clegg and other MP’s later today, many of whom fundamentally disagree with the veto, fearing it may distance us from Europe. Such an outcome could mean difficulties with trade, relations and important economic ties, which could also spell disaster as Europe is by far our largest trading partner.

Clegg and Cameron don't see eye-to-eye over the EU veto

So, going with the FTT or against it has implications but whether we support it or not the EU can vote in favour of the new charges and force them upon us. It’s difficult to know what will happen with FTT but the bigger question is what will happen to the Euro Zone and the EU as a whole. The fallout from FTT may well shape a new EU and the inability to save Greece, Italy and even Spain could see them leave the single currency, as could their unwillingness to continue with austerity cuts and tax hikes.

While these outcomes are unknown, one thing is for sure – the next five years will see a major shake up of the European Union and the Euro Zone and anyone who tells you they know exactly what’s going to happen is either back from the future or a fool.

Banks have stopped charging debit card fees to their customers, which is something that customers have worked long and hard for. However, after all the petitions and fights to end the debit card fees, these customers are less than satisfied with the outcome. Unfortunately, the fees are probably not going to end anytime soon and customers are just as irate as ever.

While many customers are intend on openly protesting, others have decided that they are going to protest in a more subtle way. They are just moving their money out of their bank accounts and putting it in credit unions.

This movement is something they have been considering for some time now. In a recent BBC article, Lorin Oberweger mentioned how she had been planning on moving her money out of her bank account for the past three years. Like many other customers, she wanted to put her money somewhere where big corporations had less influence. Credit unions provided that safeguard for her, in addition to offering lower rates.

According to a founder of a firm that specializes in delivering financial solutions to consumers, approximately a third of all people think about changing their banks. Historically, only about a tenth of customers ever take the leap to do so. That trend has changed in recent years. Over the past few years, twice as many people have left their banks due to raising fees or declining standards of service.

The Alite group conducted a survey of customers from the United Kingdom, the United States and France. They wanted to see what customers thought about their banks. This survey revealed that customers’ trust in banks dropped to the lowest level ever in 2009. Clearly, they have become even more frustrated in more recent years.

Plenty of things have taken place over the past few years that have caused the feelings of resentment that customers are experiencing. The banks may be coming to realize that customers are willing to limit their power. Bank of America tried to implement a new policy on charging customers a monthly fee to use their debit cards. The bank revoked the fee just over a month later.

However, customers have not limited the banks’ power to the point where they are going to be able to make a serious difference any time soon. According to Tim Pannel of Financial Marketing Solutions, it would take more than 40,000 customers joining the Bank Transfer Day group on Facebook before the banks got the message loud and clear. The banks are going to keep implementing these charges until customers decide to take a more definitive stand on the issue.

Over the past month, bank customers have done everything they can to vent their frustrations against the big banks. They have been extremely upset over the debit card fees charged by Bank of America and a number of other services. At first, they felt their protests were heard loud and clear by the banks. However, their enthusiasm has since dwindled.

Consumers aren’t the only ones to start venting their frustrations over the banking fees. A number of small businesses are also starting to feel the pain as well.

According to a post in This is Money, many petrol retailers are being pushed to the limits of their ability to meet their obligations. Businesses that sell petrol have already been struggling to deal with the existing competition. Many private retailers are unable to compete and only a little over 5,000 continue to operate in the UK. This marks a 75% decrease in the number of petrol retailers over the past 20 years.

As the banks shy away from issuing bank fees to their end customers due to reforms and customer protests, they are going to continue to raise the rates for retailers. Banks have been trying to regain the interest of their customers by issuing premium cards and cash back programs on fuel purchases. Inevitably, these fees need to be imposed on someone and retailers have been taking the brunt of them in more recent months.

One of the most hardest programs for petrol retailers to deal with is the Santander 123 program. Although customers are happy that they can receive up to 3% cashback on all their purchases, retailers know that many of those fees have to come back to them.

The fees generally sneak their way into the retailers bill through the interchange fees. Many people have speculated that the interchange fees are much higher for rewards cards than most other credit cards. One petrol retailer told reporters that his fees increased more than 50% as customers have started using more rewards cards.

The banks are going to keep looking for ways to get their money out of their customers. Inevitably, someone seems to always have to pay the price and small businesses need to take some of the brunt as well.

Many Bank of America customers were outraged when the bank decided to implement a $5 usage fee on debit cards. Although many people decided to vent about it, the bank was rigid on its terms for a while. After a brutal uprising from its customers, Bank of America has decided to change its mind. This decision comes shortly after regulators have started calling for banking reform policies.

Outrage Over Bank of America’s Planned Fee

Bank of America proposed a plan to create a debit card fee that would be implemented in 2012. This fee would be implemented each month. Almost immediately, customers started protesting the idea. They said that they should not have to pay for the right to use their own money.

Almost immediately, customers started rebelling against Bank of America’s plans.

In an article she posted on the Guardian, Molly Katchpole also decided to take a stand. Katchpole created a petition and started promoting it through social media networks. Katchpole claims her petition was an important part in the movement to repeal the debit card fee. Although it is difficult to establish the role she played, many people admire her for taking the initiative to make a difference.

Katchpole is an activist with Change.org. The petition her group launched ended up receiving over 300,000 signatures. These petitioners came from all over the country.

More likely, the real message came from the many customers started leaving their bank to go to credit unions. According to a Reuters post, over 600,000 consumers have joined credit unions since the end of September. These credit unions are now thriving, even after Bank of America and its competitors have agreed to drop the debit card fee.

In his post in the Washington Post, Alexander Petri says the petition probably had almost no influence on Bank of America’s decision to overturn the fee probably. Petri points out that more than 20,000 customers were willing to close their accounts over this fee.

For what it is worth, Bank of America has officially declared they have ended their $5 debit card fee on Tuesday November 1. The bank decided to give up their fee after customers reported how furious they were. Many other banks were also considering offering a debit card fee, but Bank of America was the last one to give up on the idea.

Bank of America is unable to confirm whether or not it permanently lost any business to the credit unions. Its deposit data will not be available until after the New Year.

Many customers are very pleased over the fact Bank of America has repealed the debit card fee. The question many people are asking now is what damage this has done to Bank of America and the others that tried to charge the fees in the first place. There’s still the possibility that many of them are not going to go back to those accounts, which may cause long-term damage to the banks. Of course, that may be what the banks need to remember not to try using those kinds of fees again.

On Thursday October 27, Santander UK reported that it lost GBP2.5 billion in deposits from its corporate customers. The European debt crisis has caused serious concerns over the ability of banks in the Eurozone to remain strong. Despite the fact the UK recognizes the need for banking reform, they are not doing nearly enough to fix it.

Customers are leaving Santander out of concerns that they will be unable to maintain a strong business presence. In the first nine months of the year, the bank’s pretax profits fell by 9%. Many customers are concerned that the bank will be unable to repay deposits to its customers.

One of the biggest reasons Santander lost bank profits was that they were required to set aside money for customers who were the victims of defective payment protection insurance programs. They had to set aside £538 million for that purpose.

Unfortunately,  the problem is only expected to get worse over the next coming years. Santander’s CEO said that they are going to face lower profits due to a variety of factors. Interest rates continue to decline, which will reduce revenues and discourage customers from making deposits. Also, there is growing uncertainty over the economic conditions and the regulatory environment in the Eurozone. Although Santender UK isn’t a part of the Eurozone, they are just as invested in the crisis. Customers are hoping these conditions won’t force Santander to implement new charges to maintain its bottom line.

Earlier on Thursday, the EFSF announced that all private institutions holding Greek debt would have to take a 50% loss on their investments. This is going to hit them pretty hard. The Greek debt haircut is just the tip of the iceberg. The EFSF may call for additional haircuts on debt holders for Italy, Portugal or Spain. These effects are going to hurt private lenders significantly.

The regulatory changes in the area have accounted for about £253 million in losses over the nine month period. Over the next four years, international capital requirements will increase to at least 7%. However, UK banks will need to maintain capital requirements of at least 10% due to the more stringent regulations by the Independent Commission on Banking.

The one redeeming feature of the report was that the number of mortgages have increased significantly over the past nine months. Unfortunately, the value of those mortgages have decreased substantially, largely due to the UK housing market crash. Earlier this month, the Royal Institution of Chartered Surveyors showed that the UK housing market has been starting to recover slightly. Unfortunately, more surveyors have felt that the prices were going to fall in the coming months. If housing prices continue to decline, Santander and many of the other UK banks are going to face more problems in the future.

Customers have taken some solace in the fact that the Fiscal Services Compensation Scheme backs their deposits by up to £85,000. However, they are still having concerns with Santander and all other banks that are tied to Greece, Spain, Italy or the other countries suffering from the eurozone’s debt crisis.

UK stocks rose yesterday and again today promising a recovery from last week’s decline. The rise stems from the speculation that  more support is to be offered to European financial companies from European leaders.

Royal Bank of Scotland’s stock rose by 6.1 %, Barclays gained 7.3 % and Tesco showed a rise of 2.3% as financial expert and investor Warren Buffett increased his stake in the supermarket chain to a reported 3.64 %.

Legal & General Group Plc advanced 6.4 % to 97.45 pence. Aviva Plc climbed 7.8 % to 298.9 pence. Insurers posted the biggest gains among shares in Western Europe today. Yet it seems fraudulent claims are still being blamed in the media for our high premiums. The insurance companies don’t seem to be suffering too much and they continue to make huge profits at the public’s expense. Then they have the audacity to blame us for increasing prices; the worst part is that we actually buy it! I think it’s time we had a good look at the way insurance companies exploit consumers in the UK.

Fresnillo Plc slumped 4.2 % to 1,568 pence as silver had the biggest drop since 1980 in London. The FTSE All-Share Index gained 1.2 % today and Ireland’s ISEQ Index climbed 2.1 %.

Amid fears of a “dangerous” new economic phase five central banks have committed to boost the liquidity of commercial lenders.

IMF managing director Christine Lagarde said “bold action” was needed and that “Uncertainty hovers over sovereigns across the advanced economies, banks in Europe, and households in the United States.

“Without collective, bold, action, there is a real risk that the major economies slip back instead of moving forward.”

So the Federal Reserve, Bank of England, European Central Bank, Bank of Japan and Swiss National Bank have all stepped in to help out commercial lenders. New loans are being issued in dollars, because European banks can already access additional euro funds from the European Central Bank.

The loans will be issued in October, November and December. This won’t be the first time the Central Banks have stepped in as they took a similar action during the 2008 financial crisis.

The move has been welcomed by analysts, but warned that this action would not be able to tackle the underlying problem of high levels of euro zone sovereign debt on its own.

Peter Boockvar, equity strategist at Miller Tabak in New York said of the move “The stress is still there as long as sovereign debt issues aren’t dealt with aggressively, but this move eases short-term funding problems.”

The Independent Commission on Banking, set up by the Treasury have proposed changes that will shake up how British banks do business in the future. The changes are the most radical UK institutions have faced in over a decade.

The plan proposes that all the UK’s banks will have to put their retail investments behind a firewall to protect vital services for small businesses and individuals. However these firewalled investments will also be available to house savings of big corporations as well as big corporation loans.

Global wholesale/investment banking, such as trading in securities and derivatives, would not be eligible to be placed behind a firewall or ring fence.

Those affected the most by the reform are Barclays and Royal Bank of Scotland who have large wholesale and investment departments that will not be allowed to be placed behind the firewall.

Most of Lloyds and Santander’s business would be eligible to be firewalled and although HSBC may face some re-organisation it certainly won’t be to the extent required of RBS and Barclays.

Other areas of major reform in the plan include an increase in capital requirements and the providers of long-term unsecured loans suffering losses when a financial crisis hits.

This has been put in place to try and protect taxpayers and give investors and lenders the responsibility of paying to rescue banks in a crisis. The banks are likely to be critical of new reforms as it will increase their costs and for once shift responsibility of risky investments back to those who take that risk.

The Independent Commission on Banking has said:

“The cost of capital and funding for banks might increase. In so far as this resulted from separation curtailing the implicit subsidy caused by the prospect of taxpayer support in the event of trouble, which would not be a cost to the economy. Rather it would be a consequence of risk returning to where it should be – with bank investors, not taxpayers – and so would reflect the aim of removing government support and risk to the public finances.”

The Public Accounts Committee has released a report that shows PFI investors to be ripping off British tax payers.  PFI (Private Finance Initiative) is where private companies agree to build and run schools, public infrastructure and hospitals under long term contacts that can last for as long as 30 years.

The arrangement was put in place to allow the treasury to keep the costs off their balance sheet but the treasury has come under fire from the Public Accounts Committee for assuming that these contractors will pay the appropriate tax. Most of these companies however, use offshore tax havens as their base to increase there already huge profits.

Margaret Hodge, the Labour MP who chairs the committee said “They’re milking the PFI system for profit,” and that treasury officials have been “dreadfully complacent” when tackling the problem.

One of the UK’s largest investor in PFI, Innisfree, told committee officials that 72% of its shares were held by investors offshore. This stashing of funds in offshore accounts means that taxpayers are being short changed and the treasury department seems to be taking no action to re-coup the money owed.

A spokeswoman for the Treasury said, “The government is committed to ensuring taxpayers get value for money from PFI and has already made a number of changes to improve the cost effectiveness and transparency of PFI contracts. We are also committed to delivering £1.5bn in efficiency savings across nearly 500 PFI projects, money which will be able to go back into frontline services.” However the committee has urged them to move the process along much quicker than what is currently being proposed and that taxes owed should be reclaimed from the private investors.

The financial Ombudsman (FOS) has recived criticism from Tenet a support services provider, after action was taken to increase the Financial Ombudsman Service limit from £100,000 to £150,000. They claim that this will impact premiums and excesses due to the cost of compensation being paid. They also highlighted inconsistencies in rulings made by FOS and complained that they are the only body in the UK whose decision is final and is unable to be appealed. Tenet even brought into question whether FOS adjudicators were qualified to make these decisions remarking that the current Ombudsman Chief used to be a “head librarian”.

In case you hadn’t guessed Tenet works with bank advisors and mortgage brokers and these increases are likely to affect their business as well as that of the banks. It is for this reason then that Tenet have hit out at FOS using the threat of increased premiums and excesses even though only recently Jack Straw commented that insurance companies are driving up premiums and excesses themselves by selling on customers details to whiplash claim companies increasing the number of claims made each year.

Tenets comments are suprising as FOS say that only 0.2 % of its resolved claims are in excess of £100,000 an extremely low percentage. Also FOS are not the only organisation that can make a decision that is final many organisations in the uk do including the Pensions Ombudsman. The comment by Tenet about the Fnancial Obudsmans chief Natalie Ceeney was obviously meant to undermine her authority and FOS’ too but the claims were also incorrect as Ceeney was previously in fact the Chief Executive of the National Archives.