The Guardian
|
|
"If the economic recovery is to be sustainable, fast-growing firms need access to finance to push them to the next level and enable them to expand further.
Banking sector faces wide-ranging review by finance watchdog
Competition and Markets Authority finds big four are resisting change despite low satisfaction levels among customers
Email
The CMA hopes to make banks provide better services for their customers. Photograph: Adrian Dennis/AFP/Getty Images
Britain's big four high street banks could be forced to break up
after the competition watchdog signalled its intention to launch a
sweeping investigation into the UK's £10bn-a-year banking business.
Setting out its proposals for an 18-month inquiry, the new Competition and Markets Authority has gone further than its predecessors, who said they would wait until 2015 before considering such a move.
The big four – the two bailed-out banks, Lloyds Banking Group and Royal Bank of Scotland, along with HSBC and Barclays – control 77% of current accounts and 85% of small business accounts. These market shares are little changed despite 10 investigations in the last 15 years.
The CMA, created in April to replace other competition watchdogs, 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 £8bn a year in revenue from current accounts and £2bn from small business accounts, and there are fears that the investigation will conclude with new charges for accounts.
Alex Chisholm, chief executive of the CMA, said: "Competitive personal and SME banking markets are essential to households and businesses throughout the country, and to the success of the UK economy. However, our studies have found that, despite some positive developments, significant competition concerns remain which mean that customers may not be getting consistently good service and value from their banks." Chisholm has been called before the Treasury select committee on Monday to discuss the inquiry.
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 May 2015 election. Ed Miliband had pledged to launch a competition investigation, and shadow chancellor Ed Balls said: "In the next parliament we need to see at least two new challenger banks and a market-share test to ensure the market stays competitive for the long term."
The CMA could adopt structural remedies, such as forcing banks to carve new banks out of their existing networks, or it could 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 with names such as Alliance & Leicester and Bradford & Bingley disappearing from the high street and "challenger bank" HBOS being rescued by Lloyds.
Chisholm said structural remedies were costly – creating TSB has cost £1.3bn – but should nevertheless be considered.
David Mann, head of money at uSwitch.com, welcomed the proposed inquiry. He said: "This is potentially great news for anyone who has a bank account. The CMA has the clout to fix the broken banking industry once and for all, and lay the foundations for a competitive market that works for, rather than against, customers."
Graph depicting bank market share by account numbers – from the report by the CMA. Photograph: CMA
Stephen Ibbotson of the Institute of Chartered Accountants England
and Wales also welcomed a full investigation: "It is right that the CMA
is conducting a full-scale investigation into the business lending
sector," he said. "If the economic recovery is to be sustainable,
fast-growing firms need access to finance to push them to the next level
and enable them to expand further." But he warned: "It is crucial that
this inquiry does not over-complicate the market."
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 counts would stall any competition investigation.
A Treasury spokesman said the government supported an inquiry, even though it comes as George Osborne prepares to ask the public to buy shares in Lloyds, where the taxpayer still has a 24% stake. It is not clear what impact this might have on the sale of Lloyds, or of RBS, in which the government owns an 80% stake.
The industry has been aware of the threat of a competition investigation since the 2011 report by Sir John Vickers, and last month attempted to head off a full-blown investigation by proposing a number of "remedies" to the CMA.
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-blown investigation after the CMA found that customer satisfaction levels for the big four banks are at 60%. Even after a new switching service were launched, only 3% of personal account customers and 4% of small business customers switch every year.
65m active accounts
The Big Four banks control 77% of the UK market New entrants in recent years – Metro Bank, Tesco Bank and TSB – have a combined market share of about 5%, 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 business loans
Metro Bank is the only new entrant into full SME banking in recent years
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
Setting out its proposals for an 18-month inquiry, the new Competition and Markets Authority has gone further than its predecessors, who said they would wait until 2015 before considering such a move.
The big four – the two bailed-out banks, Lloyds Banking Group and Royal Bank of Scotland, along with HSBC and Barclays – control 77% of current accounts and 85% of small business accounts. These market shares are little changed despite 10 investigations in the last 15 years.
The CMA, created in April to replace other competition watchdogs, 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 £8bn a year in revenue from current accounts and £2bn from small business accounts, and there are fears that the investigation will conclude with new charges for accounts.
Alex Chisholm, chief executive of the CMA, said: "Competitive personal and SME banking markets are essential to households and businesses throughout the country, and to the success of the UK economy. However, our studies have found that, despite some positive developments, significant competition concerns remain which mean that customers may not be getting consistently good service and value from their banks." Chisholm has been called before the Treasury select committee on Monday to discuss the inquiry.
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 May 2015 election. Ed Miliband had pledged to launch a competition investigation, and shadow chancellor Ed Balls said: "In the next parliament we need to see at least two new challenger banks and a market-share test to ensure the market stays competitive for the long term."
The CMA could adopt structural remedies, such as forcing banks to carve new banks out of their existing networks, or it could 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 with names such as Alliance & Leicester and Bradford & Bingley disappearing from the high street and "challenger bank" HBOS being rescued by Lloyds.
Chisholm said structural remedies were costly – creating TSB has cost £1.3bn – but should nevertheless be considered.
David Mann, head of money at uSwitch.com, welcomed the proposed inquiry. He said: "This is potentially great news for anyone who has a bank account. The CMA has the clout to fix the broken banking industry once and for all, and lay the foundations for a competitive market that works for, rather than against, customers."
Graph depicting bank market share by account numbers – from the report by the CMA. Photograph: CMA
Stephen Ibbotson of the Institute of Chartered Accountants England
and Wales also welcomed a full investigation: "It is right that the CMA
is conducting a full-scale investigation into the business lending
sector," he said. "If the economic recovery is to be sustainable,
fast-growing firms need access to finance to push them to the next level
and enable them to expand further." But he warned: "It is crucial that
this inquiry does not over-complicate the market."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 counts would stall any competition investigation.
A Treasury spokesman said the government supported an inquiry, even though it comes as George Osborne prepares to ask the public to buy shares in Lloyds, where the taxpayer still has a 24% stake. It is not clear what impact this might have on the sale of Lloyds, or of RBS, in which the government owns an 80% stake.
The industry has been aware of the threat of a competition investigation since the 2011 report by Sir John Vickers, and last month attempted to head off a full-blown investigation by proposing a number of "remedies" to the CMA.
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-blown investigation after the CMA found that customer satisfaction levels for the big four banks are at 60%. Even after a new switching service were launched, only 3% of personal account customers and 4% of small business customers switch every year.
Balance sheet
Personal current accounts65m active accounts
The Big Four banks control 77% of the UK market New entrants in recent years – Metro Bank, Tesco Bank and TSB – have a combined market share of about 5%, 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 business loans
Metro Bank is the only new entrant into full SME banking in recent years
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
-
More on this story
-
Breaking up banks is hard to do, but it may be the best option
The Competition and Markets Authority could go after the big beasts, but my money is on further tweaks and tickles
-
British banks braced for new inquiry as competition watchdog prepares report
-
Banking investigations: timeline
-
Shire bosses to receive windfalls after takeover by AbbVie
No comments:
Post a Comment