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Only 18 months ago, we had the independent Alliance & Leicester and Bradford & Bingley,
now swallowed up by Santander; HBOS, now part of Lloyds; and a much larger Northern
Rock. It's fair to say Britain's banking market no longer represents the acme of
competitive perfection.
So, will the recently announced EU-driven break up do anything for competition in
the UK mortgage market?
It's certainly better than nothing. Around 1,000 branches – 7% of the big bank total
– are being moved to a new life either as independent banks or under new ownership.
But setting-up a range of new, smaller banks is going to be a long, hard process
which will require new computer systems, new leadership, and fresh capital. It'll
be slow, laborious and will cost the taxpayer dear.
And it's not going to work. No one really believes that in the modern world of super-sized
banks this new generation of banks – however grand the old names they sport – can
really enjoy a profitable future. Cheltenham & Gloucester, TSB and Williams & Glyn's
won't have any impact on competition because they'll be minnows in the sector. Larger
banks will be able to undercut their smaller rivals because they generally have
lower overheads per customer.
And let's not forget the reason most of the smaller players were hoovered up in
the first place. They couldn't compete with the big boys. The creation of more minnows
contradicts the overarching trend for consolidation in banking. For the minnows
to compete against the likes of Lloyds-Halifax they need to be bought by large international
banks as a bolt-on to an existing UK presence. But who is going to buy the banks
when it may be easier and cleaner to originate your own loans?
You can argue the likes of Tesco and Virgin might make more of an impact if they
got involved. They might infuse some retail customer services into the financial
services industry, with longer opening hours and customer-focused innovation. This
would be great for customers sick of the traditional 9-5 culture. But they're not
going to do much about margins or interest rates.
The Government spin is that some 10pc of the UK banking market will change hands
as a result of these disposals. So what? As any economist will tell you, it is the
structure of the market, not its ownership, which makes the difference in banking
competition. What's proposed is no more than a little rearranging of the deckchairs.
And just how does forcing RBS to divest its insurance interests help competition?
And what are we supposed to make of the stipulation that RBS remains at or below
the number five position in the global “all debt” league tables for the next three
years. It's arbitrary and it's irrelevant.
It's hard to see how the break-up benefits the consumer. The real winner here is
not the UK consumer. It's the consultancy industry. Because as sure as night follows
day they're going to make a killing over the next five years. |
