The global financial crisis has led to substantial change to the banking industry. Major banks have been recapitalised by the Government and consolidation has taken place. The crisis has also led to changes in financial regulation, with more changes imminent.
The extent of any barriers to entry, expansion and exit in retail banking will affect how the market now develops. Where new entry and expansion can occur quickly and efficiently, it is more likely that banks which fail to meet their customers' needs will lose market share in favour of those that can.
The OFT is calling for evidence on the extent of any barriers affecting banking for personal customers and for small and medium sized enterprises (SMEs). The OFT is asking interested parties to comment on:
• regulatory requirements including obtaining authorisation from the FSA and capital and liquidity requirements
• essential inputs such as access to payment systems and availability of credit risk information
• barriers to achieving scale such as developing branch networks and customer inertia
• barriers to exit and aspects of the operation of the Special Resolution Regime.
The OFT is particularly interested in hearing from established providers, new entrants and potential new entrants to the sector, industry associations and organisations representing consumers and SME customers.
Clive Maxwell, the OFT's Senior Director for Services, said: “The OFT is committed to encouraging competition within retail banking that benefits consumers through cheaper and better products or services.
“We have recently seen some new players enter retail banking and we want to understand whether there are any hurdles to this or to the expansion of smaller banks.”
Commenting on the news, the British Bankers' Association (BBA) said: "A healthy and dynamic retail banking sector is vital to the UK economy and to both businesses and individuals alike. It is an integral part of the modern global economy and fundamental to economic growth, employment and wealth creation.
"We welcome further competition which bring greater choice for customers and a further spur to the innovation and market liberalisation which has made the UK financial services sector a major export earner.
"The BBA will consider the OFT's review of the barriers to retail banking and will provide a detailed response in due course."
