By Claire West
The Treasury Committee today (2 April) publishes its Report, Competition and Choice in Retail Banking. In the Report, the Committee concludes that the pre-conditions for effective competition in the retail banking market are not present.
The Committee highlights in particular a lack of price transparency and comparability in the personal current account market, as well as the difficulty of switching.
The Report calls on the Government to make competition a primary objective of the new regulatory body, the Financial Conduct Authority. It also recommends a "public interest test" based on competition considerations for proposed future divestments of Government-held stakes in the banks.
Committee Chairman Andrew Tyrie said:
"For competition to be effective, customers need to know what they are buying, how much they are paying and to be able to transfer their custom from one provider to another without risk. Over the course of our inquiry we heard from not only the top executives at all of the major UK banks, but also smaller players, new entrants, competition regulators and experts.
The CEOs of the large incumbents told the Committee UK retail banking was enormously competitive, but a far larger range of witnesses described the industry as close to an oligopoly. We also received much evidence about low levels of consumer satisfaction and poor treatment of consumers by the major banks.
We could not but conclude from this that competition in the UK retail banking market is not strong enough."
Moreover, so-called free banking is not free. The term free-in-credit banking is a misnomer, given that consumers with positive balances pay through interest foregone, the Report says.
It is also clear that so-called free banking has important distributional consequences. A minority of consumers, often those on lower incomes, pay explicit charges associated with overdrafts. This results in high prices and poor outcomes for a sub-set of consumers. Meanwhile, other consumers, often on higher-incomes, do not pay explicitly for their current account provision, in spite of the fact that their PCA provision clearly does incur a cost.