Setting out its proposals for an 18-month inquiry, the new Competition and Markets Authority has gone further than its predecessors, which said they would wait until 2015 before considering such a move.
The big four - the two bailed-out banks,
The CMA, created in April, will consult until mid-September on its provisional conclusion that both small business and personal current account customers get a poor service from their banks and cannot tell the difference between products provided by the main players.
The watchdog will be looking at the impact of free in-credit banking, which could be cross-subsidising the industry, as some banks insist that running current accounts loses them money. The banks generate pounds 8bn a year in revenue from current accounts and pounds 2bn from small business accounts, and there are fears that the investigation will conclude with new charges for accounts.
Bank shares slipped back on a stock market more concerned by wider geopolitical concerns.
The investigation comes at a time when political scrutiny of the sector is intensifying. The inquiry will run beyond the
The CMA could adopt structural remedies, such as forcing banks to carve new banks out of their existing networks, or recommend behavioural remedies - forcing them to become more transparent with charges or to send text alerts to customers when they go overdrawn.
As it is, 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 has created a new TSB bank on the high street, which is the process of being floated on the stock market, while RBS must break out 314 branches as a new bank aimed at small business customers.
The two state-owned banks have the largest market shares, partly because the banking crisis led to a wave of takeovers.
The coalition has already embarked on a series of attempts to bolster competition, including making it easier for new banks to be set up. And the banks had hoped that a new seven-day switching service for current accounts would stall any competition investigation.
A Treasury spokesman said the government supported an inquiry, even though it comes as
The industry has 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, establishing new account opening standards, and making it easier to compare accounts.
Chisholm said the two-month consultation would be an opportunity for these proposals to be reconsidered. But few expect the industry to be successful in seeing off a full investigation after the CMA found that customer satisfaction levels for the big four banks are at 60%.
Personal current accounts
65m active accounts
The Big Four banks control 77% of the
New entrants in recent years -
of which TSB accounts for 4.2%
Only 3% of personal customers switch bank each year
More than 40% of Big Four bank
customers are dissatisfied with their bank
Banking for small and medium-sized enterprises
3.5m business current accounts
Big Four banks hold 85% of business current accounts
Big Four account for 90% of
Only 4% of small and medium-sized businesses switch bank each year
40% of Big Four SME customers are dissatisfied with their bank
Only 13% of SMEs trust their bank
to act in their best interests
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