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Monday, 20 March, 2000, 14:16 GMT
Banks face profits probe
Banks are accused of making unduly high profits
The government has referred Britain's banks to the Competition Commission after an official report accused the industry of making excess profits from its customers.

The competition watchdog was asked to look at the provision of financial services to small and medium-sized businesses.

According to the government report, customers could pay between 3bn and 5bn less for their banking services if there were full competition.
Main points
Banks operate 'complex monopoly'
Small businesses disadvantaged
Charges for cash machines too high
low income consumers hit hardest
And it says there is even less competition in the small business market, where just a few banks dominate.

The criticism comes from the head of a government inquiry into banking, Don Cruickshank, after an investigation lasting 16 months.

His recommendations are likely to be addressed by Chancellor Gordon Brown during his Budget speech on Tuesday.

The referral was the government's first action on the report's recommendations.

Criticism of high street banks

Mr Cruickshank is particularly critical of the four big high street banks, Barclays, NatWest, HSBC and Lloyds TSB.
Don Cruickshank
Don Cruickshank: Accuses banks of not competing
They dominate the market for current accounts, controlling 80% of personal accounts. People are more likely to get divorced than change their bank account.

They made profits last year of more than 12bn, which Mr Cruickshank condemns as "unduly high".

The report points out that because few people switch banks, even when better deals are available elsewhere, the banks are free to make high charges and pay little interest.

He is recommending changes to ensure that the big four do not prevent new competitors offering better deals.

Intensely competitive

The banks argue that the industry is intensely competitive, especially compared with the rest of Europe. They say that making it too easy for other companies to start new banks would pose a threat to customers, who could not be sure their money was safely looked after.

New regulator for bank payments
Competition commission to investigate small business charges
Basic bank account for low income customers
Price information to be published
Tim Sweeney, Director-General of the British Bankers' Association, rejected the criticisms and called for a calm and measured response.

"This is a highly competitive industry. This is a very effective and important industry which is one of Britain's market leaders. One should look very carefully before disturbing existing arrangements," he said.

"Do not allow all the miasma of small criticisms to distract attention from the larger picture."
Cash machine user
Banks are already under fire for cash machine charges
But this argument cuts little ice with Mr Cruickshank, who has already attacked the banks for making "extremely high" charges for cash machine use.

"There are real problems with the way banks control the networks which allow money to flow around the economy, whether it be cheques, credit and debit cards, or electronic transfers, big and small," said Mr Cruickshank.

He has called for a new payments regulator to deal with the issue of charges and overlapping networks, which emerged in the controversy over charges for Link machines.

Monopolies reference

His report calls for a full investigation by the Competition Commission of the small business market to decide whether the banks are acting within the law.

He also wants the government to block any further mergers within the banking sector until his reforms are implemented. And he believes some bank units should be split off to ensure greater competition.

The report was welcomed by small business organisations and consumer groups.

"We are increasingly concerned that the concentration of banking services in a small number of banks is restricting choice in the small business sector," said Andrew Parkinson of the British Chambers of Commerce.

But the proposals face opposition from within the government.

The Financial Services Authority, which regulates the banking industry, has been resisting calls to have competition concerns added to its remit.

Services for the poor

Mr Cruickshank is determined to lower charges to customers. He says that payments from cash machines should be set at about 15p to 30p, rather than 1 or more as currently proposed.

Mr Cruickshank is also critical of the banks' role in providing services for low-income households in poor neighbourhoods - another priority for the government.

The report has been welcomed by consumer groups, who are looking for the chancellor to take further action to implement its findings.

Bank shares recovered early losses in share trading to close little changed on the day. They had already been depressed in advance of the report's publication by fears of what it might say.

Lloyds TSB shares were unchanged at 601p, Barclays was up 16p at 1519p, and HSBC slipped 0.5p to 733.5p.

Don Cruickshank
"Banks are overcharging their customers"
Stuart Cliffe, Association of Bank Customers
"Customers have suffered too long"
The BBC's Rory Cellan-Jones reports
"The Banks now face a competition commission enquiry"
Tim Sweeney, British Bankers' Association
"I don't recognise the levels of over charging"

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See also:

20 Mar 00 | Business
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22 Jul 99 | Your Money
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04 Nov 99 | Business
28 Sep 99 | The Company File
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