The TSC report raised concerns that retail banking in the UK has become uncompetitive after the financial crisis forced many well-known banks and building societies into mergers or buy-outs, resulting in far fewer players dominating the sector.
It said: “We note the argument of the large banks that there is no necessary link between concentration levels and the degree of effective competition. Indeed, we agree that certain markets are highly competitive whilst on some measures also being highly concentrated.
“Nevertheless, the bulk of our evidence argued that the banking market was not competitive. Like the Independent Commission on Banking we consider there is ‘a tendency, all else equal, for markets to be less competitive when more concentrated’; it is legitimate to be concerned about the state of competition in the retail banking sector.”
It urged the Independent Commission on Banking – due to publish its interim report on the 11th April - to “seriously examine whether there is a case for further structural reforms, over and above the Royal Bank of Scotland and Lloyds Banking Group divestments, to reduce concentration and promote competition”.
If the ICB sees fit, this could mean RBS and LBG are forced to sell more of their branch networks than already required by the European Competition Commission.
Speculation that the ICB may also be about to propose ring fencing of retail operations from riskier investment activities in banks was also raised by the TSC report which said: “We are encouraged by signs that [the ICB] is already considering ring fencing as a possible solution which would provide a more level playing field to all market participants.”
There were rumours over the weekend that some of the major banks were sounding out possible relocations abroad.
