Setting out its proposals for an 18-month investigation into the major banks, the new Competition and Markets Authority has gone further than its precedessors, which said they would wait until 2015 before considering such a move.
The big four – the two bailed-out banks
The CMA, launched in April to replace other competition watchdogs, has launched a consultation until mid-September on its provisional conclusion that both small business customers and personal current account customers do not have good service from their banks.
"Competitive personal and SME banking markets are essential to households and businesses throughout the country, and to the success of the
The investigation comes at a time when political scrutiny of the banking sector is intensifying.
The coalition has embarked on a series of attempts to bolster competition, including making it easier for new banks to be set up.
The new investigation – if it is formally launched when the consultation ends on 17 September – will run beyond the next general election. It comes as the government plans to ask the public to buy shares in Lloyds, in which the taxpayer still has a 24% stake. It is not clear what impact this may have on the sale of shares in Lloyds, or RBS, in which the government owns an 80% stake.
The banks have been aware of the threat of a competition investigation since the 2011 report by Sir
The watchdog has rejected these ideas, which include:
• setting up a comparison website to improve transparency
• establishing new account opening standards to make it easier for SMEs switching banks to open accounts
• making it easier to compare bank accounts and switching.
Chisholm said the two-month consultation launched on Friday would be an opportunity for these so-called remedies to be considered.
The CMA found that customer satisfication levels for the big four banks is 60%, but despite this there is very little shopping around by customers. A new switching service launched by the industry in September had not made much of a difference.
"We note, in particular, that the larger banks, with relatively lower satisfaction levels, have not significantly lost market share, while banks with higher satisfaction levels have not been able to gain significant market share, which is not what one would normally expect to find in well functioning, competitive markets," the CMA said.
The watchdog signalled that it would looking at free in-credit banking, which could be cross-subsidising the industry as some banks have insisted that current accounts are lossmaking. The banks generate £8bn a year in revenue from current accounts but there have been fears that they will start to charge for all accounts.
This is the 10th analysis of the market since
"This means small firms have not seen the full benefits of reduced costs, increased choice and better access to finance had these structural issues not been in place".
The CMA said it could adopt structural remedies such as forcing banks to carve out new branch networks or force them to become more transparent with charges, and send text alerts to customers as they go overdrawn.
Lloyds and RBS are already being forced to reshape their branch networks as a result of the state-aid terms imposed by the EU during their bailouts. Lloyds is floating TSB on the stock market while RBS must break out 314 branches aimed at small business customers.
The CMA said that new entrants into the current account market such as Tesco and Metro had taken a 5% market share but that 4.2% of this was TSB. Metro was the only noticable new entrant into small business banking.
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