Friday, 5 March 2010

A step towards competition?

Robert Peston says that RBS is auctioning off Williams and Glyn's - a bank which, I confess, I have never heard of, but which has 2% of the UK's retail banking market. Which, if it doesn't put them in the top ten banks, definitely must be in the top twenty. Although it's not mentioned on this Wikipedia page.

Aha - this article explains it - the brand does not really exist any more, but RBS is thinking of reviving it and attaching it to the 300 branches it has to sell off.

My view is that competition is the best way to get the banking sector to lend more, reduce the economic rent taken by a few individuals in the sector, and improve the efficiency of the economy.

So this is a good first step. Let's hope it is not bought by Santander, though that's looking like a strong possibility, or NAB which owns the Clydesdale and Yorkshire banks. A new independent bank, even a small one, would stimulate competition much better than transferring assets from a big company to a middle sized one.

Sadly the bigger groups can probably justify paying more for the branches - because they will be able to use a combination of monopoly power and economies of scale to make more profit from them than they would make as a standalone. This is the natural consequence of a mature industry whose business model is governed more by inertia than by innovation. Only antitrust rules will stop this consolidation from happening.

Is it worthwhile for the government to accept a lower price for the bank in return for making sure it is independent? I'd say so - the externalities from the existence of a new bank would surely be large and positive.

Along similar lines, why not demerge the Asian Network and 6 Music from the BBC rather than closing them down or selling them off? Now that I think about it, Virgin appears to see itself as a potential buyer for both W&G and 6 Music. That opens up a whole bunch of new questions...for another time.

Update: There are now five bidders for Williams & Glyn, which is an excellent sign for the future of competition in the sector. I hope that UKFI (the government's holding company for its rescued bank shares) will take into account the effects on competition when deciding which bid(s) to pursue.

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