Last week the Parliamentary Commission on Banking Standards issued its final report and recommendations to government. While much of the media commentary inevitably focused on the aspects that dealt with bankers' behaviour, the Commission also had a lot to say about competition in retail banking.
Anyone who's followed EEF's blog in recent months will know that competition in SME banking is very dear to our hearts.
Our view has been that SME banking is the heart of SME access to finance.
We would welcome a world where SMEs drew on multiple sources of external finance - both debt and equity - and banks were merely a part of a diverse and vibrant landscape.
But the reality is that this world is decades away in the UK, even with laudable attempts by government and the private sector to develop alternative sources of finance.
For the forseeable future banks will be the main source of external finance for SMEs.
On competition in SME banking, the Commission has agreed with our view that progress from the government is too slow. Like us they are chagrined at the demise of the Co-op's plans to buy Lloyds branches under Project Verde and the implications this has for the emergence of a serious, at-scale challenger bank. It has recommended that the government immediately launches a study of a possible common utility platform, full account number portability, and reducing downwards the number of days for the incoming account redirection service; and immediately set the OFT (soon to be the Competition and Markets Authority) to commencing a market study of the retail and SME banking sector.
We agree with this but we think the goverment study could go further.
There's no doubt that the ease of switching accounts is a barrier to new challengers establishing themselves and competing with the incumbents. But making switching seamless will not by itself fix the lack of dynamism on the High Street. There is an ingrained inertia from SME customers who see all the banks as the same to take the initiative to switch. They need a push to encourage them to do so. Some of this push will come from new entrants provding compelling offers for switchers to join their bank. But our view is that the government should help this process by introducing a time-limited, capped incentive matching savings companies can secure by switching banks.
At the very least an idea like this should be considered as part of a review on how to boost switching. And there needs to be other considerations too - such as investigating the use of sharing branch infrastructure with new entrants particularly if that infrastructure is government owned (e.g. Post Offices).
In coming weeks we will look to feed into the OFT's calls for views on the scope of the market study on competition in SME banking and we also expect a response from the government to the challenges laid down by the Commission.
What is encouraging though is that it is now difficult for the government to point to its other actions and pretend they are doing enough on competition in SME banking. This is not going away as an issue.