Tories look to break up 'superbanks' and boost consumer competition

Published on Monday 20 July 2009 22:03

COMPETITION watchdogs would be asked by a Conservative government to investigate whether the new Lloyds Banking Group and Royal Bank of Scotland superbanks should be broken up.

Shadow chancellor George Osborne made the revelations as he warned that there was not enough competition in the banking market for consumers.

The Liberal Democrats yesterday also called for the break-up of the banking giants, particularly ahead of the government selling its major shareholding in the organisations. The creation of the superbank means that 77 per cent of UK deposits are with either Lloyds, RBS or Barclays. Some 40 per cent of mortgages are also held with the Big Three. The proportion is even higher for new home loans.

Mr Osborne said the Tories wanted to stop the big banks from swooping on their captive market with new charges.

In a paper on banking regulation, Mr Osborne said: "In the wake of the crisis, financial services consumers may find themselves more vulnerable. Mergers in the sector have narrowed competition in what was an already concentrated market.

"And there is a danger that, as banks rebuild their balance sheets, retail and small business charges may be seen as an easy means of boosting revenue."

Mr Osborne vowed that the Conservatives would address the potentially "harmful effects of consolidated superbanks on competition".

The Office of Fair Trading and the Competition Commission would investigate the impact that an enlarged Lloyds and RBS had on the market, he said.

But first the Tories will await the European Commission's decision on the banking giants, which is also threatening to break them up.

New commercial and community banks would also be encouraged to start up under a Conservative government.

The Tories' other headline measures included transferring responsibility for regulation of banks back to the Bank of England.

Conservative leader David Cameron has pledged effectively to scrap the Financial Services Authority, part of the tripartite system of regulation the party blamed for failing to head off the financial crisis.

Mr Cameron said the debt crisis had been "at best ignored and at worst encouraged".

He added: "For this, I believe the finger of blame points directly at the system of financial regulation established by Gordon Brown in 1997.

"At its heart was the tripartite system; a system in which no-one was looking at the big picture, no-one had responsibility and authority to act and no-one was effectively in charge."

The Liberal Democrats also launched their banking regulation policy yesterday.

At the London Stock Exchange, Treasury spokesman Vince Cable compared the exposure from the financial crisis to the Chernobyl nuclear disaster.

He also called for the bigger banks to be broken up before they are returned to private ownership, saying: "The Lloyds-HBOS merger should be unscrambled as part of this process, and RBS should also be split, with its investment banking operations floated off."

Treasury minister Lord Myners said the Conservative plans would cause "considerable disruption" and would be immensely expensive.

&#149 DAVID Cameron last night indicated that he could bring back some of the big names from the last Conservative government, if the Tories were returned to power at the next general election.

His comments will be seen as an attempt to placate critics who have accused him of using the fallout from the MPs' expenses scandal to get rid of the party's old guard while protecting his inner circle.

Opposition outline plans for major changes

THE main opposition parties yesterday outlined their plans to shake up the banking system. Here is a summary of their main policies:

CONSERVATIVES:

&#149 Give the Bank of England powers over financial regulation and a bigger policing role on the amount of credit available. The financial crisis has partly been blamed on people borrowing far beyond their means to repay the loans.

&#149 The Financial Services Authority would be replaced with a new Consumer Protection Agency watchdog. This would act for consumers on issues such as bank charges and excessive interest rates for credit.

&#149 The Office of Fair Trading and Competition Commission will be asked to investigate the impact on consumers of consolidation of banks, including the giants Lloyds Banking Group and RBS.

&#149 A new senior post would be created within the Treasury for a minister with responsibility for European financial regulation, who would spend time in Brussels defending the interests of the City of London.

LIBERAL DEMOCRATS:

&#149 Banks which are partly owned by the taxpayer should be broken up into smaller organisations, before being returned to private ownership.

&#149 Well-paid bankers would be forced to publish details of their pay and bonuses.

&#149 Treasury spokesman Vince Cable argues banks should not be allowed to become so big that they can derail the entire economy: "Some aspects of the financial services industry are simply too big for the British economy to manage safely. The large, failed British banks are the financial equivalent of Chernobyl. Like the former Soviet Union, the UK became over-reliant on dangerous financial reactors."

&#149 The Financial Services Authority would be retained as a unitary regulator.

&#149 Banking giants such as the merged Lloyds and HBOS would be broken up, while RBS would be split with its investment banking arm separated.