Britain's biggest banks face the prospect of being broken up by the competition regulator, in spite of warnings that this would be hugely expensive and hold back lending to the economy.
The Competition and Markets Authority (CMA) has dismissed the concerns of banks, amid warnings that the costs of forced branch sales would vastly outweigh any benefits, and that support for breaking up the banks is based on false pretences.
The CMA ended a five-month consultation by launching a full investigation into current accounts for consumers and small businesses. The regulator has identified the large branch networks run by UK’s biggest banks, as well as the prevalence of free current accounts, as potential barriers to entry.
Unlike in other markets such as mobile phone networks, consumers and businesses are highly unlikely to switch banks, the CMA said. It pointed out that the market shares of the four biggest high street banks – which equates to more than three quarters of the UK’s accounts – had barely moved in recent years.
At the end of its investigation, which is likely to take around 18 months, the CMA may force banks to alter their charges, or send customers text messages when they enter overdrafts.However, it can also order banks to sell high street branches and customers.
The European Commission has already ordered Lloyds and Royal Bank of Scotland (RBS) to spin off branches and customers as a result of their taxpayer bail-outs in 2008, and the CMA said it could go further in this respect.
“While we recognise the significant costs associated with structural remedies… the CMA continues to consider that it is important for all remedy options to remain open,” the regulator said on Thursday.
It pointed to the significant high-street branch networks run by the major banks as one reason for anaemic switching levels, and dismissed claims that moves to online banking were making branches less of a barrier to entry.
In submissions to the consultation, published by the CMA, Britain’s major banks warned of the unintended consequences of breaking them up, and said the regulator’s claim that structural issues are disadvantaging consumers has been made on false grounds.
“The analysis of structural issues is almost entirely based either on unsubstantiated assertion, or on evidence which is at best mixed, and does not support the notion that a structural remedy might be necessary or proportionate,” HSBC said in its submission.
Barclays said: “Forced divestments of any kind would be disproportionate.Structural remedies would be extremely costly and burdensome for the businesses involved and such cost may well outweigh any potential benefit.”
RBS, which is spending hundreds of millions of pounds on creating new IT systems for Williams & Glyn, its EU-mandated spin-off, said “divestiture remedies would be neither necessary, effective nor proportionate in nature”.
New rules to make switching current accounts easier have led to a 22pc increase in switching in the last year, but only 3pc of customers have switched accounts in the last year, despite relatively low levels of satisfaction with the major high street banks.
The CMA pointed to overdraft charges falling by just 3pc over the last two years, despite substantial reductions in banks’ borrowing costs, as one area where customers have been treated unfairly.
The watchdog will now appoint a group of experts to lead the review. Ian Gordon, a banking analyst at Investec, said that the eventual report “may ultimately be lost in a sea of political gridlock in the aftermath of the UK’s May 2015 General Election”.
Ed Miliband has voiced his support for breaking up the big four banks and introducing a market share cap. Shares in the banks were relatively unaffected by the announcement, which had been widely expected.
telegraph.co.uk
The Competition and Markets Authority (CMA) has dismissed the concerns of banks, amid warnings that the costs of forced branch sales would vastly outweigh any benefits, and that support for breaking up the banks is based on false pretences.
The CMA ended a five-month consultation by launching a full investigation into current accounts for consumers and small businesses. The regulator has identified the large branch networks run by UK’s biggest banks, as well as the prevalence of free current accounts, as potential barriers to entry.
Unlike in other markets such as mobile phone networks, consumers and businesses are highly unlikely to switch banks, the CMA said. It pointed out that the market shares of the four biggest high street banks – which equates to more than three quarters of the UK’s accounts – had barely moved in recent years.
At the end of its investigation, which is likely to take around 18 months, the CMA may force banks to alter their charges, or send customers text messages when they enter overdrafts.However, it can also order banks to sell high street branches and customers.
The European Commission has already ordered Lloyds and Royal Bank of Scotland (RBS) to spin off branches and customers as a result of their taxpayer bail-outs in 2008, and the CMA said it could go further in this respect.
“While we recognise the significant costs associated with structural remedies… the CMA continues to consider that it is important for all remedy options to remain open,” the regulator said on Thursday.
It pointed to the significant high-street branch networks run by the major banks as one reason for anaemic switching levels, and dismissed claims that moves to online banking were making branches less of a barrier to entry.
In submissions to the consultation, published by the CMA, Britain’s major banks warned of the unintended consequences of breaking them up, and said the regulator’s claim that structural issues are disadvantaging consumers has been made on false grounds.
“The analysis of structural issues is almost entirely based either on unsubstantiated assertion, or on evidence which is at best mixed, and does not support the notion that a structural remedy might be necessary or proportionate,” HSBC said in its submission.
Barclays said: “Forced divestments of any kind would be disproportionate.Structural remedies would be extremely costly and burdensome for the businesses involved and such cost may well outweigh any potential benefit.”
RBS, which is spending hundreds of millions of pounds on creating new IT systems for Williams & Glyn, its EU-mandated spin-off, said “divestiture remedies would be neither necessary, effective nor proportionate in nature”.
New rules to make switching current accounts easier have led to a 22pc increase in switching in the last year, but only 3pc of customers have switched accounts in the last year, despite relatively low levels of satisfaction with the major high street banks.
The CMA pointed to overdraft charges falling by just 3pc over the last two years, despite substantial reductions in banks’ borrowing costs, as one area where customers have been treated unfairly.
The watchdog will now appoint a group of experts to lead the review. Ian Gordon, a banking analyst at Investec, said that the eventual report “may ultimately be lost in a sea of political gridlock in the aftermath of the UK’s May 2015 General Election”.
Ed Miliband has voiced his support for breaking up the big four banks and introducing a market share cap. Shares in the banks were relatively unaffected by the announcement, which had been widely expected.
telegraph.co.uk
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