Newspaper article International New York Times

Dominance of Big U.K. Banks Is under Scrutiny

Newspaper article International New York Times

Dominance of Big U.K. Banks Is under Scrutiny

Article excerpt

The Competition and Markets Authority is concerned about the concentration of retail banking and potential barriers for new entrants into the market.

Britain's antitrust authorities said on Friday that they expected to open a formal investigation into the country's retail banking industry, citing potential barriers to competition that include the control of a national network of branches by four big banks that offer free banking to many customers.

If the inquiry proceeds as expected, it could challenge the dominant role of Britain's big four: the Lloyds Banking Group, Royal Bank of Scotland, HSBC and Barclays. Together these banks control more than three-quarters of the market in personal accounts despite the government's concerted efforts to bring smaller rivals into play.

For years, policy makers have complained about a lack of choice in retail banking in Britain, where few customers are inclined to switch among big players that offer similar products and control most branches. Critics argue that the relationship of many Britons with their bank often outlasts their marriages.

Yet British consumers tend to like the fact that banks offer free banking to those who do not overdraw their accounts. And so the public might not welcome an inquiry into whether such a practice distorts competition.

On Friday, the Competition and Markets Authority, the antitrust regulator, published a preliminary report and said it would consult on its "provisional decision" that there should be a full inquiry into personal and business accounts which, it said, are together worth about 10 billion pounds, or $17 billion. Theoretically that could lead to the breakup of the four big banks, although such an outcome is unlikely.

The document said that only 3 percent of personal customers switch banks each year and that the big four banks also provide more than 85 percent of current accounts for businesses and nine out of 10 business loans. Yet consumer satisfaction levels with the big four, the report said, are less than 60 percent.

Two of the four, RBS and Lloyds, had to be bailed out in the financial crisis, which severely damaged the image of Britain's banking sector.

Britain's banks have consolidated rapidly over the last 15 years, leading to a much greater concentration in Britain than in the United States. Peter Hahn, senior fellow at Cass Business School in London, said that the top five retail banks in the United States had a much smaller market share than Britain's biggest five -- although some other Western nations have a banking structure more similar to Britain's.

One of the deterrents to new entrants in the market, the antitrust regulator's report said, is the cost of setting up a network of branches. In recent years there have been newcomers, notably Metro Bank, Tesco Bank and TSB, which the government recently forced Lloyds to sell. …

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