Competition and Markets Authority (CMA) : Inquiry into the UK Banking Sector

Peat, Jeremy (2015) Competition and Markets Authority (CMA) : Inquiry into the UK Banking Sector. [Report]

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    Abstract

    This policy brief summarises, with some limited comments, the Provisional Findings (PFs) and Notice of Possible Remedies published by the CMA on 22nd October 2015. The CMA commenced this inquiry in November 2014 and the final report is due by May 2016. The investigation covers the provision of personal and business current accounts and also some wider aspects of SME banking across the UK. Despite earlier comments that Scotland might be a separate market for SME lending, the whole of GB is treated as a single market for all aspects of this report. The SME sector is of major importance to the Scottish economy, accounting for over 99% of all business enterprises. In the PFs the Group set up by the CMA provisionally determine that as a result of certain features of the markets investigated, there are adverse effects on competition (AECs). Therefore they propose a number of remedies to offset the features identified and to reduce the consumer detriment resulting from the AECs. The key findings are summed up in this quote from the report: - ‘The combination of these features means that there is weak customer response to differences in prices or service quality and established banks have incumbency advantages. As a result, the incentives on banks to compete on prices, service quality and/or innovation are reduced.’ The proposed remedies focus on means of encouraging greater consumer response and better incentivising banks to compete. The CMA is not recommending any structural changes nor the end of ‘Free-if-in-credit’ current accounts. There are specific remedies to help support SME lending and ‘re-engineer’ the process of accessing loans. The PFs and proposed remedies are currently out to consultation, with comments required by 20 November 2015.