Bank watchdog plans are shelved

The Government pledged yesterday to open Britain's banking system to the "full rigours of competition" but stopped short of the crackdown that Britain's banks had been led to expect.

The Government pledged yesterday to open Britain's banking system to the "full rigours of competition" but stopped short of the crackdown that Britain's banks had been led to expect.

Publishing its response to a report from Don Cruickshank, the former telecoms regulator, which claimed banks overcharged customers by £5bn a year, the Government said it wanted to see better standards of information on credit cards and other financial products.

The Government also plans to review banking regulation and rules on money laundering to ensure that they do not distort competition and to examine whether the existing voluntary banking code is tough enough to protect consumers.

However, ministers have decided to take more time to consult the industry before pushing ahead with demands for a new regulator to shake up the credit card and cheque clearing system. Legislation to set up PayCom, as the watchdog will be called, is not nowexpected before the next Parliament.

The Government has already launched a Competition Commission inquiry into how the big banks operate in the small business market.

The Chancellor, Gordon Brown, said he was determined to "drive competition forward and deliver real improvements for personal and small business customers".

However, bank shares rebounded sharply on relief that the measures had turned out to be nowhere near as tough as feared. One City analyst said: "It was very limp. There is nothing in it at all."

Mick McAteer, a senior policy adviser at the Consumers' Association, said: "This is a step in the right direction. I think proper consultation is the right way to go - as long as Gordon Brown's plans really do break up the banks' stranglehold over the banking system."