Lloyds Banking Group's sale of 632 branches – and, with them, perhaps five million customers – to the Co-operative Group could not have come at a better time. As the tarnished reputation of the financial sector sinks ever lower, battered by everything from the insurance mis-selling scandal to malfunctioning computer systems, from Libor fixing to the laundering of Mexican drug money, any disruption to the dominance of the "big five" cannot but be applauded.
And how dominant they are. Britain's high street banking sector is one of the most concentrated in the world, overwhelmingly controlled by Barclays, Lloyds, HSBC, Royal Bank of Scotland and Santander, which, between them, account for more than four in five current accounts and two-thirds of mortgages.
True, there has been some change, following the financial crisis. Virgin Money, for example, bought up the remains of Northern Rock, various supermarkets now offer banking services and Metro Bank – the first start-up for 100 years – has grown to 10 branches. But such ventures are so small, by comparison with the giants, as to barely register.
Apologists of behemoth banking point to the economies of scale, the vast pools of capital and the cheap loans and "free" services that result. Such advantages must, however, be weighed against the stifling effect of so little competition and the drag from a bank's policy being set so far away from its actual customers. Judging by the financial crisis, the rash of subsequent scandals and the ongoing scarcity of small business loans, the balance is far out of kilter.
It is not only retail customers who would benefit from the wider choice and better service of a more competitive banking sector. Businesses, particularly smaller ones, also have much to gain. Only two of the Big Five do any significant volume of lending to small companies and even they, with national policies and interest rates, rarely look at individual risk assessments in the way a more local bank, with better background knowledge, would do. For all the Bank of England's creative schemes to unlock business lending, it is the structure of the industry that is at fault here. The expansion of the Co-op, with its stronger regional links, may help. But it is still only a small dent. And the problem has not gone unnoticed. Sir John Fingleton, then the chief executive of the Office of Fair Trading, warned earlier this year of the need for a "step change", and the OFT last week launched another probe into how far banks have heeded calls for more transparent charges and easier ways to switch between them. There are also signs that customers are starting to vote with their feet, with a sharp rise in the number shifting away from Barclays in the aftermath of the Libor scandal. But with so few banks to choose from, and the barriers to new entrants to the industry so prohibitively high, greater numbers of customers moving their accounts around still does not constitute real competition.
While the Government's attention is focused on the – extremely slow – implementation of the Vickers reforms, there have been more interesting ideas from Ed Miliband. The Labour leader's recent proposal of a "challenger" bank created from 1,000 branches spun out of the Big Five is an interesting one. Britain cannot wait, however. The case for a radical shake-up of the banking sector is compelling. Our banks are too powerful, badly behaved and all too often provide a woeful service. With public opinion running high, the time to take on the vested interests is now. The Co-op's expansion is welcome, as is the OFT review. But the sooner retail banking is referred to the Competition Commission, the better.