Don’t hold your breath if you think the latest review of competition in the banking sector will find a magic formula to conjure up more corporate rivalry, more satisfied customers and more switching between banks. None of the others have.
The most radical review, Sir Don Cruikshank’s in 2000, was largely ignored by the Labour government of the time. Since then, we’ve had a Competition Commission investigation, three inquiries by the Office of Fair Trading, and two by especially created bodies – one independent, one parliamentary – after the great banking crisis of 2007-09.
In the middle of it all sits the hard fact that, with its back against the wall in the post-Lehman meltdown of 2008, Gordon Brown’s administration sanctioned LloydsTSB’s purchase of HBOS in the face of objections from the then competition authorities.
That deal is one reason why the statistics on market shares are wearingly familiar. The “big four” banks have 77% of the personal current accounts, according to the new Competition and Markets Authority (CMA); the same four have 85% of business accounts and 90% of business loans.
“In both segments we observed that the providers with the highest levels of customer satisfaction are not winning market share, while the banks with lower levels of customer satisfaction are barely losing market share,” says the CMA. “This is not what we would expect in a well-functioning, dynamic and competitive market.”
Fair comment. But what is the CMA going to do about it? The big break-up option is formally on the table but it would astonishing if, say, Lloyds were told to liberate Halifax. It cost Lloyds £1.4bn just to get TSB halfway out of the door on the orders of the European Commission and, one way or another, some of those costs will rebound on customers.
And expecting Royal Bank of Scotland to restore NatWest to independence would be like asking the 81% state-owned lender to wade through treacle for a decade. It has taken about four years (and counting) to separate 300 branches under the Williams & Glyn badge. Hopes of reprivatising RBS would be put on hold.
How about forcing banks to charge explicitly for personal banking services? In order words, abolish free in-credit banking, which everybody knows is not “free” because savers pay with lower interest rates and borrowers suffer higher charges. So: 50p to write a cheque and 2p for every direct debit payment, with freedom for limited-service operators to undercut the bigger beasts with cheap and cheerful offers.
It sounds like one way to stir things up. The punters might hop around as merrily as they now do with supermarkets, an industry where the old order is cracking thanks to the arrival of committed discounters. But would any government ever be prepared to argue that banks should impose more upfront fees? It’s hard to imagine.
We’re left, then, with minor remedies, such as subsidised access to the payment system for smaller and newer banks; greater transparency on charges; the ability to opt out of overdrafts. There is a long list of such “behavioural/regulatory” possibilities in the CMA’s document.
It is a new regulator with something to prove, so perhaps we shouldn’t prejudge it. But a big structural break-up, however desirable in theory, looks hellishly expensive. The abolition of “free” in-credit banking is probably a political non-starter (though it would be invigorating to hear the CMA make the case). So a fudge – lots of minor behavioural interventions that satisfy almost nobody – is the way to bet.
