The chairman of the Independent Commission on Banking says the banking industry should be referred to the competition commission if his reforms to improve competition are not met by 2015.
Launching the ICB’s final report at a press conference in London this morning, ICB chairman Sir John Vickers said three reforms must be implemented by 2015 or banks may face being referred to the competition commission.
He said the Government must work with Lloyds to ensure its plans to sell off branches result in a “strong challenger bank”. He added that as things currently stand the divestiture will not achieve that. He wants a “seamless” switching system for personal current accounts to be introduced to encourage customers to switch banks. Thirdly, he said competition must be made central to the new regulatory structure by giving the Financial Conduct Authority a stronger duty to promote effective competition than currently proposed.
Vickers said: “We are not at this point recommending that markets for banking services be referred to the competition commission but a referral should be actively considered if any of the three conditions just mentioned is not met by 2015.”
Vickers said the reforms were necessary because competition in the UK retail market has not been effective, conditions for well informed customer choice are not good and banks have exploited customer and regulatory awareness for their benefit.
Under a deal struck between the Government, Lloyds and the European Commission to allow state support for Lloyds at the height of the financial crisis, the bank must divest itself of the TSB brand and its 632 branches by December 2013. The report says the plan should be “substantially enhanced”.
It says: “Since the currently proposed divestiture has important limitations, its substantial enhancement would be desirable to address the issue of its size and its funding position. The Commission therefore recommends that the Government seek agreement with Lloyds to ensure that the divestiture leads to the emergence of a strong challenger bank.”