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The BBC's Mary Gahan reports
"The banks effectively prevent, restrict or distort competition"
 real 28k

Federation of Small Businesses, Stephen Alambritas
90% of small firms bank with the top four clearers
 real 28k

Tuesday, 6 March, 2001, 18:44 GMT
Big banks 'operate monopoly'
The four main UK clearing banks' logos.
Big four have nine out of 10 small business accounts
Small and medium size businesses may lose out because the major banks in the UK have a monopoly grip on the market, the Competition Commission has ruled.

The preliminary findings after a year-long inquiry showed that the big High Street banks restrict price competition and choice for small firms.

Don Cruickshank
The competition probe was ordered following the Cruickshank report
"It hardly comes as a surprise," said HSBC banking analyst Michael Lever.

"I personally don't think one could have expected the banks to come out of this with a pat on the head."

The findings were welcomed by representatives of small businesses.

"Ninety percent of all small businesses are locked into the four major clearing banks," said Stephen Alambritas, a spokesman for the Federation of Small Businesses in an interview on the BBC Radio Four's Today programme.

"We are hoping that the report will try and unravel this complex monopoly."

Impact of monopoly

A "complex monopoly" is one where a group of two or more organisations controls at least a quarter of a market and prevents, restricts or distorts competition.

Royal Bank of Scotland
The report has not yet decided whether the banks' monopoly acts against the public interest
The competition watchdog found that the banks operate such a monopoly, but has not yet decided whether it acts against the public interest.

It will issue a final verdict on that in mid-June.

But Mr Alambritas pointed out that it is difficult for firms to change banks at the moment, and not easy for other banks to enter the market.

He called for measures to change this.

Static market

Companies tend to stick with their banks because they want to avoid the complications of transferring standing orders and direct debits, Mr Alambritas said.

Barclays Bank cash point
Barclays' and other banks' share prices took a beating on Tuesday, but they recovered by the evening
At the same time other banks fail to enter the market because the automated payment system used for electronic transactions of money is much cheaper for the main four clearing banks.

The competition probe was ordered last year after a report by the government adviser Don Cruickshank found that personal and small business customers were not getting a fair deal from banks.

Bank shares

Banking shares fell sharply during early trading on Tuesday when the preliminary findings were revealed.

Before lunch, Barclays was down 2%, Bank of Scotland was down 4% and Royal Bank of Scotland was down 1%.

Bank of Scotland was a loser because traders felt the report would make any further large-scale mergers between banks difficult.

Last week Abbey National called off its long-running efforts to merge with Bank of Scotland.

The referral of Lloyds TSB's bid for Abbey to the Commission also made consolidation less likely, said SG Securities banking analyst Richard Staite.

Yet, by the end of the day the banks' share prices had bounced back to levels near their opening prices.

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See also:

06 Mar 01 | Business
Q&A: Bank competition probe
04 Aug 00 | Business
Government warns banks
20 Mar 00 | Business
Banks face profits probe
20 Mar 00 | Business
Backlash against UK banks
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