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The bank break-up – and you
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A formal announcement about the new shape of the UK banking industry is expected from the Government this week. Will it leave you better off?
The European Commission has decided that, under competition laws, a shake-up is needed to bring more competition to the banking sector. Chancellor Alistair Darling is likely to confirm that Lloyds, Royal Bank of Scotland and Northern Rock will be broken up and their parts sold to new players in the market.
As a result there could be some new banking names on the high street over the next three or four years– potentially including Tesco and Virgin Money.
But what does all this mean for consumers?
Competition
Most experts say the break-up of the banks should prove a positive move for bank customers. This, along with new entrants from overseas and the expansion of both Tesco and Virgin’s financial services, will bring a welcome shake-up to the UK banking market.
Andrew Hagger of website Moneynet.co.uk says: “It will introduce a much needed breath of fresh air, new products and added competition and hopefully ensure that lending margins are reduced and that savers get a good deal too.”
His view is backed up by Ed Bowsher, head of consumer finance at money website Lovemoney.com. “Increased competition should lead to lower mortgage rates, higher savings rates, and more innovative, consumer-friendly products,” he says. “The only danger is that a potentially lethal combination of politicians and bank bureaucrats may make a mess of the transition process.”
Current accounts
Mr Bowsher adds that if consumers want to take advantage of the increased competition, they must be prepared to switch their accounts regularly to find the best deal.
“The clampdown on unfair bank charges means that some banks may try and compensate for the lost revenue by restricting free banking,” he says. “With that background, the proposed bank break-ups are very welcome. More players on the high street make it more likely that free current accounts will survive.”
Annie Shaw, founder of Cashquestions.com, says it will be interesting to see what new entrants to the sector bring to the market. “They could provide simple, transparent and good value services for people who just need basic current accounts, savings and loans and give the old dinosaur banks a real run for their money,” she says.
by Emma Lunn, 2 November 2009
