Just watch the banks cash in on change

WATCH out as Britain's biggest banks look for clever ways to recoup some of the money they may lose if the Treasury succeeds in squeezing them over the service they provide to small businesses.

No, the Big Four are unlikely to lose the £700-odd million profits that the Competition Commission says they have been unjustly wringing from Britain's 3.5 million small and medium enterprises.

But yes, expect some crafty manoeuvring as they do their best to minimise the damage.

In particular, last week's Commission report raises the notion that banks might have to share branches, or allow the customers of one to use another's branches without paying a penalty. This is not an entirely ridiculous notion. But if, after a suggested further look at the idea, the proposal is adopted, try to imagine what might happen.

The Commission's report acknowledges that some branches may close. And one can easily predict that the big banks will be happy to do just that and, of course, blame Government interference for provoking those closures.

The Commission's key point on the issue is this: 'It is not clear that branch closures would be detrimental if they arose from a changed pattern of usage of remaining branches in particular localities, and hence improved their viability.'

And as far as it goes, this is right. These are early days in the reshaping of banking services. But if banks are to share branches, and if some close as a result, let us be vigilant in ensuring that no community is left completely unserved.

EVEN by the usual standards of international summit meetings, this weekend's European Council get-together in Barcelona is set to be an extraordinary waste of time and money.

Long before the first prime ministerial or presidential airliner had appeared over the Spanish horizon, the communique was all but sewn up.

The French had won some concessions on energy liberalisation, deep differences over labour-market flexibility had been papered over and the fantasy of making the EU 'the most competitive market in the world' had been restated once more.

Back in June 1997 in Luxembourg, Tony Blair persuaded his fellow European leaders to endorse an 'action plan' to 'get Europe to work'.

All its measures for reforming European labour markets and pursuing US-style economic flexibility have been reheated and served up, unchanged, at Barcelona.

'We are changing the terms of the European debate,' Chancellor Gordon Brown declared in June 1997. Blair has said much the same thing this weekend, five years later. Either this 'debate' is remarkably slowmoving or, the more likely explanation, Britain has not changed its terms and has no chance of doing so.

EU leaders are just not very interested in making their economies and labour markets as flexible as those of the US. Even if they were, they would be stopped by their 'social partners' - EUspeak for unions and other pressure groups.

But remember, as in 1997, these ringing British declarations have little to do with making the EU more 'competitive'. Rather, they allow Blair and Brown to maintain two positions simultaneously. First, they can lecture Continental leaders on their arthritic labour markets and lack of economic 'dynamism'.

Second, they can claim Europe is fully committed to free market principles, thus it is safe for Britain to contemplate abolishing the pound.

The truth is that Britain lost the argument in Luxembourg, lost it in Barcelona and will lose it yet again at the next 'jobs summit' or 'economic reform' meeting.

More immediately, Britain's taxpayers have lost in having to foot their share of the bill for this costly and fruitless exercise.

AH, auditors! What an inquisitive bunch they are. Next time you hear a banker or an industrialist say their company has the most rigorous imaginable system of internal auditing, monitoring and control in place, remember this little detail from the report into the mayhem wrought by John Rusnak at Allied Irish Banks' US offshoot, Allfirst Financial.

In 1999, internal auditors decided to look at what he was up to. A sample of 25 transactions was chosen. But of those, all but one involved exchange traded products where there was little risk of fraud.

The remaining one was a foreign exchange option. That single forex option was genuine, hence the auditors went away satisfied. In fact, half the 63 forex options on the books at the time were bogus.

This is staggering. Let it sink in. The internal audit was so slapdash that only one trade was examined to see if it was real. It was real - so the auditors blithely declared that all Rusnak's reported trades were sound.

Will you feel quite so comforted when you are next reassured that a firm has rigorous internal controls?