In this article, it is said that the lacking of competition in Britain’s personal-banking markets has long been a worried problem to consumer groups. Consumers have remained reluctant to switch their current accounts, since it will be very cumbersome even though they have become used to shopping around for other utilities. Therefore, based on this situation, the sale of recent rescued bank’s branches and several ambitious new entrants seeking to grab a significant share of the market might create a better choice for bank customers.
Moreover, it is said that the sale of 318 branches of the Royal Bank of Scotland (RBS) could be a first step to end the oligopoly enjoyed by Britain’s big four: RBS, HSBC, Barclays and Lloyds. The potential new competitors, who are ambitious to gain a significant share of the market, include Santander, a big Spanish bank; Sir Richard Branson’s Virgin Money; Metro Bank, backed by Vernon Hill, an American bank founder; and there are another two potential contenders are the Post Office and Tesco, Britain’s biggest retailer. And it is predicted that, the main challenge for the new contenders may be to persuade the customers to shop around, because the failure of Northern Rock demonstrated the dangers of banks relying on the wholesale markets for their funding. Therefore, they are now more interested in taking deposits from the public.
Banking sector is completely controlled by central bank's policies. But banks too are firms trying to grab a share of the market. Here the good is money and price is interest rate. If consumers are not willing to change their prefernece it means the banking sector is quite stable. In such situation if new banks are to grab some portion of the market share they must provide incentives in the form of higher interest rate for deposits and lower interest rate for loans so that their own margin of profit is narrow but consumers are more satisfied.
ReplyDeleteI did not realize that there were so few large banks in Britain. Also, as history has shown, the "too big to fail" problem is very dangerous. This results in government bail outs and in most cases a long period of heavy government regulation to prevent collapse.
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