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RBS, Lloyds Banking: How to deal with business banking dominance

Economy
Written by Gary Howes
Friday, 29 January 2010
Why a post office bank is now necessary. RBS (LON:RBS) and Lloyds Banking Group (LON:LLOY) must have their dominant share of the business banking market broken according to a body that represents SME interests across Britain. Related Articles: RBS branches could go to Santander SA RBS, Lloyds Banking lending dominance to be reduced Force Lloyds Banking, RBS to lend to SMEs Lloyds Banking Group to float branches? Lloyds Banking share price could scupper offer Related Links: RBS Colin Borland, of the Federation of Small Businesses (FSB) in Scotland, told the The Herald that Lloyds Banking Group and RBS have a dominant share of the business banking market in Britain courtesy of recent consolidations in the market. Lloyds Banking Group in particlular appears to be utilising its economies of scale when it comes to business banking: our sister publication Director of Finance has previously reported that Lloyds TSB appears to be the final destination for all those seeking to open new banking accounts at Bank of Scotland - the branch of the former HBOS group that specialised in business banking. Any hope that Bank of Scotland would operate seperately of its former competitor appear to be dashed with all customers now falling firmly under one banner. But how do we approach the issue of competition in business banking? Borland suggests that the current lack of competition in business banking necessitates the formation of a new Post Bank which will supply finance to SMEs via post office branches. However, is a post office bank really necessary if we take into account the changes in British banking that are already underway? 2010 has so far promised to see more entrants come into the retail banking market: We have supermarket giant Tesco now in possession of a banking license and there is the much publicised case of Virgin Money entering the retail banking scene after acquiring a banking license through the purchase of Church House Trust. There is also the likely hood that Metro Bank, a US backed entity, will try to muscle in. Despite this there has been very little indication that any of the above have an appetite for tackling the business banking industry any time soon. Indeed as Richard Northedge suggests in his Director of Finance column, these banks may simply lack the experience and expertise to operate a universal banking service for many years to come. The free market therefore appears unable to break the Lloyds / RBS dominance. There is of course always the question of competition and the European Commission. A directive sent to the state backed banks by Europe has ultimately resulted in RBS and Lloyds Banking promising to shrink in order to satisfy competition concerns. The banks have until 2013 to whittle down in size. But there is little information suggesting that business banking assets will be offloaded. RBS will lose branches, but it has the luxury of deciding which branches to dispose of. And if Lloyds Banking Group is consolidating all business customers in Lloyds TSB then it will be of little consequence should they have to offload, for example, Halifax or Bank of Scotland branches. Therefore Borland's vision of a post office bank may indeed still be a necessity if market competition is unable to fill the business banking status quo any time soon. In a speech to the think tank Demos, Vince Cable - the Liberal Democrats Treasury Spokesman - argued a radical overhaul to British banking could not be "ducked" any longer if the far-reaching changes to the British economy that are needed to secure future growth were to happen. In his speech, Cable called for much more choice for bank consumers through new "local" lenders, credit unions and mutuals catering for the financially excluded, and a post office bank. Share this: digg del.ico.us Newsvine Reddit Furl technorati Facebook Comments (3) Subscribe to this comment's feed Incorrect Posted by Jonny, 29 January 2010 It is public record that Lloyds Banking Group will dispose of Lloyds TSB Scotland as part of the European State Aid remedies, whilst retaining the Bank of Scotland brand. Your sister publication really should check its facts. ... Posted by Alan T, 31 January 2010 Pretty sure it has been agreed that Lloyds Banking Group will sell off Lloyds TSB in Scotland leaving the Bank of Scotland Brand intact... however the point is essentially still valid in that it will only be BoS and and not BOS and LTSB. Not sure of the full picture in England and Wales, but BoS will not be around there. FSB do NOT represent me Posted by JP, 01 February 2010 I really don't know what gives FSB teh right to think they can talk for all smal businesses. They certainly don't talk for me as I have invested much of my profit in LLoyds shares and I am sure I am not the only one as it is the most frequently held private share on the stock market. What better treatment are the FSB expecting exactly?? There is no barrier or monopoly to changing banks so I can only suppose RBS and LLOY must be fairly good at it already if they are seen to have such an overwhelming SME customer base! I hear Barclays and Alliance and Leicester also do business banking. It's a free country just move your account if you think there is a monopoly. Typically muddled self promoting self interest group. I will not be joining THEM any time soon. Post a comment Name (required) Email (required) (not published) Website Title By posting on this website you are agreeing to abide by our website comment policy and all posts are subject to the approval of the website editor. We will remove posts that contain offensive or threatening language, personal attacks on the writer or other posters, posts that are off topic and posts that are considered spam or specifically used to promote any commercial products or services. Any poster who repeatedly contravenes the policy will be banned from posting on the website.