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The City at Night

Breaking Up The Banks

Author: Stuart Fry

As widely reported in the Financial Press, the UK’s Competition Regulator known as the CMA (Competition and Markets Authority) has recently announced that it is to launch an inquiry that could lead to the British Banks being broken up.

The market is currently dominated by the “big four” banks on the High Street and one of the items the CMA will investigate is the difficulty for customers to switch bank accounts.  I have to say, I recently changed my bank account as I was unhappy with the service and interest rates I was receiving and found no difficulty whatsoever in switching my account.

This current stagnancy in consumers moving their bank accounts has led to some interesting quotes from our political leaders, such as Ed Balls pointing out that “People [switch their bank account] on average every 26 years.  You’re more likely to be divorced than to change your bank account.” 

One of the key ideas behind forcing the main players to potentially sell off parts of their business is that it would introduce increased competition in the marketplace.  We saw pre the financial crisis, when there were larger numbers of smaller banks in existence, that competition did not really exist and consumers did not change their bank accounts more frequently; so what makes the CMA think that things will be any different now?

Putting myself in the shoes of the “big four”, I certainly would not be happy if I had spent time building up a successful and profitable business only to be forced to sell certain parts of my business to someone who was struggling to become successful within the marketplace.  Whatever happened to “survival of the fittest”?

This will be an expensive and time consuming inquiry that will potentially lead to increased costs and burdens within the Banks that will ultimately be passed on to the same consumers the CMA is trying to help.  I’ll leave it to you to decide if that is a complete waste of money or of benefit to society.  Of course, only time will tell but for it to be a success consumers will clearly have to change their banking habits.

Will we see a Competition inquiry next for the large Investment Banks? 

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