Major banks face competition probe

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British High Street Banks As Libor Charges Mount

A full-blown competition investigation is to take place into the dominance the major banks have over personal and business accounts, the Competition and Markets Authority has announced.

The CMA said there has been "very little movement" in the market shares of the four largest banks, which are Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland (RBS).

The levels of customers shopping around and switching current accounts are "low" amid limited transparency in the sector, it said.

Previous studies by the CMA have found that essential parts of the retail banking sector "lack effective competition and do not meet the needs of personal consumers or SMEs (small and medium-sized enterprises)".

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The current account market generates revenues of more than £8 billion, while the CMA's investigation into SME banking will include more than £2 billion of business current account market and business loans.

Big four dominant

Some 65 million active personal current accounts exist in the UK, while there are more than 3.5 million business current accounts.

The big four banks collectively supply more than three-quarters (77%) of the personal current account market in the UK, and the CMA has previously found that despite moves to make it easier to switch banks, the number of people who do so remains low.

The big four also account for more than 85% of business current accounts and 90% of business loans. The CMA has said that SME switching levels remain low, with just 4% changing their bank every year.

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The CMA said it is concerned about continuing barriers of entry and expansion in the sector, which limit the ability of smaller and newer providers to develop their businesses.

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The investigation will be conducted by a market reference group, drawn from the CMA's panel of independent members.

The group will be appointed shortly and will publish a timetable for the investigation. Investigations of this kind can take up to 18 months.

The CMA also intends to look again at agreements put in place following a report by its predecessor, the Competition Commission, in 2002 into SME banking.

The agreements were intended to help SMEs shop around by stopping them from feeling forced to take bundles of financial products together. The CMA will examine whether there has been any change of circumstances which means the agreements should be changed.

The CMA's announcement was welcomed by the business sector.

John Longworth, director general of the British Chambers of Commerce, said: "For many years Britain's dysfunctional banking sector has struggled to meet the needs of SMEs, impeding the growth prospects of some of our most promising young companies."

'Unwelcome features

John Allan, national chairman of the Federation of Small Businesses (FSB), said the CMA is "right to put business banking under the microscope".

He said: "The market has a number of unwelcome features. It remains worryingly concentrated.

"There are a range of structural issues that have long been identified that potentially restrict competition and choice for small firms seeking much-needed finance and other banking services."

Business Secretary Vince Cable said: "Britain needs a more competitive and effective banking market that works for the real economy. One that gives consumers more choice, encourages genuine innovation and works for small and medium-sized businesses.

"This is a well-documented problem, which is why I set up the Business Bank two years ago to increase the supply of finance and support alternatives to the big high street banks.

"But the problem remains that the market is still dominated by the big banks, and that's why this morning's announcement is so important, because this investigation will now look at how to address this."

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