An analysis of UK bank and building society mergers found that although these mergers have generated substantial efficiencies for the banks concerned these benefits have not been passed on to customers.
The study by the ESRC Centre for Competition Policy at the University of East Anglia found that while most merging institutions have benefited from mergers, interest rates for the bulk of banking customers remain unchanged. Indeed, savers who hold notice saving accounts with merging banks and building societies have suffered a decline in interest rates up to six years after a merger takes place.
Dr John Ashton and Dr Khac Pham examined 61 UK bank mergers occurring between 1988 and 2004. For each of these mergers, efficiency changes were recorded for individual banks and interest rate movements were recorded for savings accounts, mortgages and personal loans.
Data from Moneyfacts.co.uk was used to make these detailed interest rate comparisons. They found that merging banks improve their levels of efficiency up to six years after a merger, indicating that merging banks and building societies can provide banking services to their customers at a lower cost.
By contrast, in most cases the levels of interest paid to, or demanded from, customers shows no significant difference to the interest rates provided by banks and building societies, which have not merged. Of greater concern, customers holding notice savings accounts with merging banks have suffered a significant decline in interest rates relative to customers of banks and building societies which have not merged.
Commenting on the findings Dr Ashton said: "Retail banking customers gain little from bank mergers and in some cases can lose out from mergers. Consequently, the consumer perspective must be given more consideration when assessing the merits of future potential banks mergers."
The findings indicate that while banks have obviously made beneficial merger decisions, these benefits are not shared with their savings, personal loan and mortgage customers. In some cases, such as notice saving accounts, mergers have actually led to worse interest rates for customers.
