Responding to the Labour party’s plan to cap the market share of banks in a bid to increase competition, Bill Michael, EMA head of financial services at KPMG, commented:
“The theory of increased competition is compelling and obvious. In theory, more banks will encourage greater innovation, improve customer service, lead to tighter pricing and reduce systemic risk. In reality, this is challenged by the global regulatory framework, the broader market and the state of the economy.
“The ultimate goal is to better serve customers but competition is very difficult to mandate. You don’t get the best performance by telling the top athletes in the 100 metre sprint they can't run faster than ten seconds. It is counter-intuitive and these proposals may do more harm than good.
“If we have learned any lessons from the last five years, large, blunt, artificial and imposed separations of the sector have not delivered.
“Reducing banks’ scale will not result in enhanced price competition given the high capital and liquidity costs introduced to make the system safer. The other irony is that selling branches would move retail customers rather than the SME businesses, widely recognised as the bedrock of the economy.
“Reducing the barriers to entry and creating an environment that encourages an open retail and SME market is the first step. However the ultimate ingredient is a growing balanced economy. Without this, the market cannot breathe.”
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