Once again, attempts to introduce greater competition into Britain’s top-heavy high street banking sector have failed to deliver.
This time it is the Co-op. The group has decided that it cannot proceed with the plan to buy the 630-plus branches of taxpayer-owned Lloyds Banking Group that the European Commission has said must be sold to comply with state aid rules.
Nor is the Co-op deal the first to come a cropper. Last autumn, Royal Bank of Scotland’s long-running talks with Santander – for the sale of a similar number of branches, for the same reason – also fell through. Alternatives will now be pursued. RBS already has plans to float its hived-off division on the stock exchange; Lloyds is expected to do the same. But the implications are no less concerning for all that.
Few would dispute that Britain’s retail banking sector is deeply flawed. Four in five current accounts and more than two-thirds of mortgages are held by just five big players. Although there have been a few start-ups – Virgin Money and Metro Bank, for example – in recent years, they are too tiny to exert real competitive pressure.
By far the most promising challenger was the Co-op. Indeed, the group was already picking up customers turned off by the scandals and poor service that have dogged the Big Five. And the transfer of 4.6 million customers from Lloyds would have been a significant boost. The problem, says the company, is that the sums simply do not add up.
Thus, the collapsed Co-op deal encapsulates the insoluble tensions that beset our post-financial-crisis banking industry. We want more competition and more small players; but the already-onerous regulatory burden is only being increased. Similarly, sluggish lending, particularly to small businesses, is bemoaned even as banks are directed to shore up their balance sheets and to take fewer risks. And all this against a background of sustained public disdain for bankers and all their works. Is it any wonder, then, that so few are either willing or able to take up the challenge?