Risk raking, competition and choice in banking sector under scrutiny in the UK

Written by Ray Clancy

Friday, 16 July 2010 09:33

The UK Treasury Committee has launched an inquiry into competition and choice in the banking sector amid concerns that it is not working well in the sector.

The global financial crisis had a major impact on the shape of the banking sector resulting in widespread consolidation among banks and building societies and several organisations, including the Office of Fair Trading have raised issues.

The inquiry is expected to look at the impact of the financial crisis on competition and choice in both retail and wholesale markets, assess the impact of widespread consolidation among banks and mutuals and examine the key barriers to entry inhibiting increased competition including regulation.

It is also likely to examine whether competition is inhibited by difficulties faced by customers in accessing information about products, explore the Government and competition authorities’ strategy to increase competition in banking, including the likelihood that new entrants will successfully enter the market, consider the relationship between competition and financial stability, consider the impact of free banking on effective competition and look at the role of foreign based operators and whether they are likely to return to the UK.

It has set a deadline for submissions of 12 noon on Monday 6 September 2010 and the Committee intends to hold oral evidence sessions in the autumn.

The Committee normally, though not always, chooses to publish the written evidence it receives, either by printing the evidence, publishing it on the internet or by making it publicly available through the Parliamentary Archives.

It also announced the list of committee members: Mr Andrew Tyrie (Chairman), John Cryer, Michael Fallon, Mark Garnier, Stewart Hosie, Andrea Leadsom, Andy Love, John Mann, George Mudie, Jesse Norman, David Rutley, John Thurso and Chuka Umunna.

The annoucement comes at the same time as the government published its consultation document on Bank Levy. It sets out issues around technical aspects of the design and implementation of the Levy and it is proposed that draft legislation will be published in the autumn to allow for further comments from stakeholders.

‘Excessive risk taking in the banking sector was a significant contributory factor in the recent financial crisis. Alongside the wider financial regulatory reform aimed at increasing the resilience of the financial sector, the Levy is intended to ensure that the banking sector makes a fair contribution that reflects the risks it poses to the financial system and the wider economy, and to encourage banks to move away from riskier funding,’ said Financial Secretary to the Treasury, Mark Hoban.

The Levy will apply to the balance sheets of UK banks and building societies and to the UK operations of banks from abroad. At the same time, France and Germany also announced that they would introduce a Levy based on banks’ balance sheets.