The Labour leader is not alone in wanting more competition in the banking industry – but progress on reforms is slow
This is the statistic that grabs the eyes of politicians and other critics of the banking sector: 80%. It is the market share that the big four – Barclays, HSBC and bailed out Lloyds Banking Group and Royal Bank of Scotland – have of the all important current account market.
It explains the pledge Ed Miliband is expected to make on Friday to cap the size of British banks, in the latest intervention by the Labour leader in banking competition. In the past two years he has called for "one nation banking", the creation of regional banks and also for the big players to be forced to sell off 1,000 branches to create two new big banking players.
He is not alone in wanting to get more competition in to the banking sector. Only a year ago, Chancellor George Osborne was deriding what he called the near oligopolistic situation in the banking industry. "I want new faces on the high street. I want upstart challengers offering new and better services that shake up the established players," Osborne said.
At the time Osborne pointed to the sale of Northern Rock to Sir Richard Branson's Virgin Money and the plan by Lloyds to sell 631 branches to the Co-operative Bank as a sign that competition was to come. Progress has been slow. Virgin Money is yet to launch any current accounts, although is promising them this year, and the Co-op deal with Lloyds collapsed spectacularly, dashing any hopes of a creating a serious rival to the big four.
For a brief period 10 years ago, HBOS was making inroads into the big banks' current account market share, only for it to end in tears in the 2008 banking crisis. In 2008 HBOS nearly collapsed and had be rescued by a member of the big four; Labour overrode competition rules for that rescue by Lloyds to take place.
That is still being unwound. The price for state aid extracted by Brussels for the £65bn of taxpayer money pumped into RBS and Lloyds was the sale of 314 branches by RBS and the Lloyds branches the Co-op attempted to buy.
As recently as September the Office of Fair Trading provided data on market shares in the industry after Osborne asked the competition body to look at the impact those two branch sell-offs might have.
The sale of the Lloyds branches – now operating under the TSB brand – has the biggest impact on market share. The big four's market share could fall to between 65% and 75% from 70% to 80% once that sale is complete with a flotation of TSB on the stock market promised this year.
It also makes bit of a dent in Lloyds' 30% share of the current account market, which the competition watchdog identifies as a key foothold for any banking competitor. Lloyds' share would fall to 26% – a whisker off Miliband's rumoured 25% cap.
The RBS branch sell-off is aimed at small business banking, where the Edinburgh-based bank dominates the market with a 25% to 35% share. This would fall to between 20 and 30% on the sale of those branches. That, however, is unlikely to take place until the end of next year with the revival of the old Williams & Glyn's brand.
In September the OFT considered, briefly, a merger of the two branch sell-offs – coincidentally a combined 1,000 branches that Miliband has called for in the past – but warned of overlap and delay as a result. Both branch spin-offs were supposed to have been completed by now, demonstrating that breaking up banks does not have instant results.
The watchdog also looked at what makes a successful competitor – an exercise also conducted by Sir John Vickers. His report on banking grabbed most attention for its proposal of ringfencing high street banks from investment banks.
To have a chance to make a difference, a competitor needs 700 branches and a 5% share of current accounts – even more than the spin-off from Lloyds Banking Group.
One of the left over aspects of Vickers is the threat of a competition investigation into the sector by next year if the new current account switching service – which guarantees a glitch free move in seven days – fails to dent that 70% to 80% market share. The OFT is also conducting a study of small business banking due to be published in early this year.
By suggesting caps on market share, Miliband is reopening the debate about a market where another oft-quoted statistic is that customers are more likely to divorce than move their current account.
Read more here >> The Guardian | Quail eggs
