Takeover of TSB shows the market works, say banks

HIGH street banks will use the £1.7 billion takeover of TSB by Spain’s Sabadell as evidence that competition is working and that intervention by the regulators is unnecessary.

The Competition and Markets Authority is investigating the dominance of the market by the top lenders, the difficulties customers have in switching accounts and the problems small companies face when trying to borrow.

The entry into the market of Sabadell, which claims that lending to smaller firms is one of its core strengths, could make the market more competitive, a senior banking source said.

‘The market seems to be doing the job itself,’ the source added.

Sabadell struck a deal this month to buy TSB and the move was immediately welcomed by Business Secretary Vince Cable, who suggested that the bank might bring some competition into the market.

‘My understanding is that Sabadell is a small business bank and would want to take TSB in that direction,’ he said.

South of the Border, the UK’s four largest banks have a combined market share of 85 per cent in terms of smaller firms’ main banking relationships, a report by the Financial Conduct Authority and the CMA found last year.

Separately, Labour leader Ed Miliband has pledged to break up the banks if he wins the General Election in May.

The Sabadell deal comes at a crucial time in the CMA investigation. Banks have until the end of July to submit their views to the CMA, which will make a decision on what to do in September.

New rules are likely to come in during April 2016.

The CMA’s review is into a series of undertakings given by the banks in 2002 to make the market more competitive. They agreed then to limit the bundling of loans and accounts, as well as providing greater transparency and easier methods of switching.

The CMA would like to apply some of the changes brought by personal current account switching to the commercial market.

The body is separately looking at personal current accounts and at whether free-if-in-credit accounts limit competition. Several of the smaller banks hoping to challenge the larger institutions say the free model is bad for competition.

Tesco Bank and Virgin Money have spearheaded complaints about the free banking model.

Tesco said free in-credit banking ‘creates a barrier to entry which is very difficult for new entrants not to conform to in order to compete’.

Virgin said free banking made the pricing of current accounts ‘opaque’ because the lack of fees for those in credit is subsidised by unclear overdraft charging.