Britain's big banks could face a full-blown monopoly investigation if they drag their heels on opening up to competition, a national regulator warned Thursday.
Banks must act to make it easier for customers to understand various charges and to switch to other banks if they choose, said John Fingleton, head of the Office of Fair Trading.
If the situation doesn't improve, Fingleton said, his agency could refer the banking industry for an investigation by the Competition Commission. That agency has the power to force a break up of private companies, as it has done in ordering BAA Ltd. to sell Gatwick, Stansted and Edinburgh airports.
"A step change is needed in the banking sector," Singleton said in a speech to a seminar organized by market intelligence company MLex and Lloyds Banking Group.
"Going forward we need to see evidence which demonstrates that the market dynamics of entry and switching are sufficient to drive stronger customer-focused competition. Without this the obvious question is whether the concentrated market structure of UK banking is the problem.
"And one way to consider this question is a reference to the Competition Commission."
Fingleton suggested that a possible referral could come after his agency's review of the personal current account market which is to begin later this year.
The British Bankers Association said research shows that "the vast majority of customers are satisfied with the service their bank provides and there is no reason for them to switch accounts.
"Similarly, there is no evidence that customers want to move away from the current 'fee free if in credit' model to one where every customer pays for every transaction, as is the case in virtually every other country," said BBA spokesman Brian Capon.
Shares fell in the banking sector as Moody's Investors Service announced that three British giants _ Barclays, HSBC and part-nationalized Royal Band of Scotland _ remained under review for a possible downgrades of their credit ratings. HSBC and RBS were both down more than 1 percent by early afternoon.
Banks already face a major restructuring, as the government announced in December it would legislate to require banks to isolate their unglamorous retail operations from their more volatile investment banking activity. Treasury chief George Osborne says that legislation is aimed as solving the problem of banks being "too big to fail."
Fingleton pointed to the part-nationalized Lloyds Banking Group as an example of how the fallout from the credit crisis had led to less competition.
Lloyds' takeover of Halifax/Bank of Scotland, rescuing it from collapse, had eliminated HBOS as a major competitor in the personal current account market, he said.
"The Lloyds-HBOS merger increased concentration in an already highly concentrated and non-dynamic market, he said.
Beyond making it easier for customers to switch banks, Fingleton said banks should make it easier for customers to understand the true costs of their accounts.
A study by his agency "found that consumers paid little attention to unarranged overdraft charges and forgone interest" which make up the vast bulk of banks' revenues, Fingleton said.