The recession has made Britain’s banks less competitive and they should be broken up,
concludes the Treasury Select Committee. As the banking system spiralled towards oblivion in 2008,
the market became more concentrated.
‘The financial crisis has resulted in significant consolidation of the UK retail market. Well known firms such as HBOS, Alliance & Leicester and Bradford and Bingley have either exited the market or merged with rival firms. A large number of building societies have merged, undermining the diversity of provision in the sector. Whilst these ‘rescues’ were necessary in order to preserve financial stability, the consequence has been to reduce competition and choice in the market.’
Each merger and acquisition made during the implosion of RBS and other banks are described as ‘a missed opportunity’ to encourage diversity. The report continues:
‘The five large banks—Lloyds Banking Group, RBS, Barclays, HSBC and Santander—have an overwhelming 85pc share of the personal current account market. In 2008 the market for SME liquidity services was dominated by just four firms who shared 80% of the market.’
The report argues that regulatory failure has turned the market into a corporatist cartel. Concentration is such that a handful of banks are ‘too big to fail’; and they are getting bigger. Deposits and investments are made at institutions that are, in effect, underwritten by the taxpayer; other institutions are lucky to get a look in.
Committee chairman Andrew Tyrie criticised the government for not making competition the central objective of the new regulator. The committee insists that the regulator must divorce retail from investment banking. High risk investment arms should be ring-fenced from deposit accounts and other long-term saving products. Banks are opposed to this, arguing that their costs will expand, making Britain less attractive to large-scale foreign investment. But, as Robert Peston notes, this report, backed by cross-party support, suggests that the banks have lost.
PS: The Telegraph has an excellent selection of quotes from the report.
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