The break-up plan: It’s high time to end Britain’s banking oligopoly
It has been called a near banking "oligopoly". The Big Four banks enjoy such market dominance that they reportedly hold more than three quarters of all active current accounts. According to the FCA, the largest six banks also control 80 per cent of the mortgage market.
The Competition and Markets Authority (CMA) grew sufficiently concerned that it launched a retail banking market investigation in 2013. Today, it will make a provisional decision on remedies first suggested last October.
Level playing field for banking industry
Paul Lynam, CEO of the Secure Trust Bank and chairman of the BBA Challenger Bank Panel, believes the recommendations are likely to herald incremental change and will not go far enough. He told City PM: "I don't want favours, just a level playing field, especially in respect of capital and funding."
For a challenger like Secure Trust Bank, he says the cost of bank funding is around 2.6 per cent compared with 0.9 per cent for a larger traditional bank. A lower cost of funding for challengers would in turn allow more lending – and more choice for customers.
The CMA has previously dismissed the forced break up of the dominant banks as a mechanism to drive more competition. As RBS' attempt to hive off Williams & Glyn has demonstrated, breaking up these megaliths is both costly and time-consuming.
Last October, the CMA also ruled out curbing "free banking" for consumers in credit, instead choosing to focus on price comparison services, and easing the methods by which consumers can switch their accounts.
But gimmicks such as price comparison websites are not the answer.
Calls for concrete measures
Lynam is calling for "concrete measures" that could lead to a level playing field including rule changes on capital requirements at European and UK regulators. Alternatively, the Treasury could set up a special fund for challenger banks.
Final proposals from the long-running CMA review are due in August. We must not miss a rare opportunity to foster competition. The CMA should formulate detailed and definitive steps that will lead to the creation of a truly level competitive playing field.
Last month, KPMG warned that the "golden age" of challenger banks is over as incumbents are squeezed from both sides. Ultimately, that would mean less choice. As Lynam rightly says, consumers and small businesses would suffer as a result. Decisive action is required, and now.