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Scottish MPs urge OFT to investigate banking competition

MSPs on the Scottish Parliament’s economy, energy and tourism Committee has called for the Office of Fair Trading to conduct a formal investigation into competition in banking in Scotland.

The committee’s report recommends that the level of competition, focusing on personal accounts, mortgages and business banking services in Scotland must be investigated by OFT.

It says that individual banks should never again be allowed to become so important that their failure could endanger the economy of a country and allow them to “hold a gun to the collective heads of the taxpayer”.

The committee calls on the Scottish Government to develop a clear vision for the financial sector in Scotland, including the role of Royal Bank of Scotland and Lloyds Banking Group.

It recommends a shake-up of Scotland’s Financial Services Advisory Board to establish a body which is more representative and includes other businesses and consumers.

The committee warns that a number of actions must be taken to avoid a repeat of the financial crisis which led to the near-collapse of Scotland’s biggest banks.

It says banks should return to “Scottish principles of financial rectitude”.

They should stop aggressive marketing, driven by performance-related bonuses, and improve their corporate governance to ensure growth is managed.

According to the report, banks and building societies have to support the production of goods and services across the economy.

The report says the Scottish Government should also communicate at the highest levels with the UK’s tripartite authorities – the Bank of England, the Treasury and Financial Services Authority – on domestic and European regulation.

Committee convener Liberal Democrat MSP Iain Smith says: “Banks are there to serve the economy. It is not for the economy to serve the banks. It’s important that the Scottish Government has a clear strategy for the type of banking sector Scotland needed to meet the needs of individuals, businesses, communities and the wider economy.

“The financial crisis and the resulting recession have undermined the economic growth agenda in Scotland.

“The legacy of the crisis must be managed to ensure it never happens again. A sustainable financial services industry that supports the rest of the Scottish economy must be developed. Small and medium business have been hit particularly hard hit by more stringent conditions in obtaining finance and the higher costs attached.”

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