The report accused them of operating a ‘complex monopoly’ and making excessive profits.
The Big Four – Barclays, Lloyds TSB, HSBC and Royal Bank of Scotland – where there is evidence of ‘excessive charging’ are to be ordered to offer SMEs interest at a base rate of minus 2.5% on current accounts, free money transmissions, or a choice between the two.
This ‘transitional’ remedy is in addition to a series of 13 safeguards, which the director general of Fair Trading is to seek from the four and four others namely, Bank of Ireland, Bank of Scotland, AIB Group and National Australia Bank (Clydesdale and Northern).
These safeguards include:
- speeding up account switching
- publishing performance objectives,
- slashing charges on switching,
- faster transfers of securities,
- ending the requirement to hold a current account in order to get a loan or open a deposit account,
- compiling price information on tariffs,
- informing SMEs when unauthorised overdraft fees are levied and;
- investigate costs and benefits for arrangements for banks to use others’ branches on fair terms in areas where they have none.
But, the commission warned it could take up to three years to implement these measures.
Brown, in a Commons statement on DTI secretary Patricia Hewitt’s behalf, said access to finance and the service from banks was key to future SMEs’ and UK prosperity.
He said: ‘Our goal is to create a fully competitive environment where new entrants can compete with existing banks on a fair basis and can offer more competitive banking services for small businesses.’
Brown’s move came five months after the DTI received the commission’s report, which suggested that a new tax on the Big Four might stimulate competition.
The inquiry took two years and followed the Cruickshank Review of Banking Services commissioned by the Treasury which found little prospect of effective competition emerging in the SME banking market without government action.
Brown said it was not a question of banking profits. These were essential to the efficient working of a market. High bank profits resulting from efficiency were no problem, but those earned as a result of a complex monopoly and overcharging reduced market effectiveness and had adverse effects on the public interest.
He said there could be an early review of the operation of the banking market if the OFT saw more effective competition emerging.
He added: ‘I urge the banks to work with the DGFT to achieve what is in everyone’s interest: a better service, a fairer deal for Britain’s 3.5 million small businesses.’
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