On 13 October 2016 the Scottish Competition Forum was joined by Dr Heather Gibson (Director-Adviser at the Bank of Greece), Colin Garland (Director of Remedies at the CMA) and Alistair Haig (from the University of Edinburgh Business School) for a discussion on competition in the banking and financial sector.
Two years ago in May 2014 the Scottish Competition Forum, in partnership with the Europa Institute, held an event on the challenges and possibilities of competition law and policy in the banking and financial industry. At the time, the sector was still being seriously challenged by the aftermath of the 2008 of the financial crisis; it was also characterised by significant concentration, due to a number of important mergers that had been allowed to go ahead mainly for the purpose of protecting the integrity of the banking system. In addition, the then recent LIBOR scandal had unveiled very serious instances of cartel behaviour affecting very important interest rates, upon which much of the trade in currency and bonds revolves.
Two years on, these issues remain extremely relevant. While recent branch divestitures in the United Kingdom seem to have lessened the degree of concentration characterising the retail banking sector, significant questions remain unanswered as regards the stability of certain banks: recent stress tests have indicated that capital levels can still fall short of what is seen as “acceptable” by economists and regulators. Rivalry as regards retail banking services remains relatively limited, with customers being reluctant to “shop around”: in this respect the CMA’s review of retail banking has indicated that the established banks do not compete “hard enough” for consumers and has therefore called for a number of measures to be introduced to boost the ability and willingness of customers to switch to competitors. The CMA has also advocated for more objective and transparent information to be shared across the banking market, so that consumers can make informed decisions, on the one hand, and banks, especially new entrants and smaller ones, on the other hand, can use new technology to improve their offer of products and services to the public.
Banking and financial regulators have also cast light on the degree of competition characterising markets for “allied” services, such as, among others, information services that allow investment banking providers to operate efficiently, calling for greater rivalry to be ensured.
This session focused on what can be done in light of the state of the industry. Is it correct to look at banking as “any other industry”, and therefore deal with these problems on the basis of “traditional” competition assessment patterns? How can the antitrust scrutiny of banking practices take into account concerns for stability without enjoining genuine rivalry based on product quality? To what extent can innovation in services’ provision act as a means of boosting competition in sectors allied to the financial industry, so that certain services, especially linked to investment banking, can be provided efficiently and with due consideration for consumer protection? And “what about Scotland”? Due to the importance of the banking and financial industry for the Scottish economy, what are the current implications of this state of affairs for growth and productivity in Edinburgh, Glasgow and beyond?