Written evidence submitted by the Campaign
for Community Banking Services (CCBS)
EXECUTIVE SUMMARY
Branch dependent individuals and small businesses
in over 1000 urban and rural communities effectively have no choice
of banking provider and as the banks and building societies continue
to close branches this number is expected to increase because
of the post crisis pressure on profits and further consolidation
within the industry. New entrants face a big challenge in not
having access to a national, neutral branch network.
Against a historic background of active resistance
by the industry, the committee is urged to recommend the re-launch
of an improved and re-priced inter bank agency service, a trial
of neutral shared branching, recognition by the competition authorities
of local markets as well as a national market for retail banking
services and to press for a UK version of the US Community Reinvestment
Act, inter alia, to protect delivery of banking services to local
communities.
INTRODUCTION
The Campaign for Community Banking Services (CCBS)
is a coalition of 22 national charities and membership organisations
who share concerns about the decline in local access to, and choice
in, banking services, in particular the closure of local bank
branches: see attached statistics. We assist local communities
in campaigning against closures and promote viable alternatives
including neutral shared branching and inter bank agency arrangements.
CONCERNS
1. CCBS' primary concern is with those communities,
urban and rural, which lose all their bank branches—nearly
1,000 have done so—and the adverse impact this has on community
commercial sustainability.
2. However, for branch dependent bank customers,
the 1,050 communities with only one bank branch effectively have
no choice of bank unless they are prepared to lose time and incur
cost in banking elsewhere. The 500 communities with only two banks
remaining offer limited competitive choice.
3. According to 2007 research by the Federation
of Small Businesses, 60% of small businesses visit their bank
branch at least once a week and 10% do so every day.
4. CCBS has been told by one of the major
banks that SMEs account for over 30% of their counter traffic
which would seem to reflect the need pattern identified above.
5. Although small businesses are the primary
concern, similar limitations of choice apply to many vulnerable
individuals, particularly those without convenient local access
to free ATMs, cashback, on-line banking, post office access, etc.
In that category would be numbers of the elderly, disabled people,
those with mobility problems and full time carers.
BRANCH CLOSURES
1. The latest available national statistics
on bank branch closures is contained in the CCBS annual Branch
Network Reduction Report. That for 2010 is attached
and is also available on the CCBS website.
2. The situation is worsening as the dominant
retail banks: RBS/NatWest, Barclays, Lloyds TSB and HSBC, who
are responsible for 95% of bank presence in communities with only
one or two banks, address their post crisis cost base in the light
of growing use of technology by some sectors and seek to reduce
costs by closing branches and/or reducing hours of availability.in
communities perceived to have low sales opportunity.
3. As shown in the attached report, all
four major banks have a history of closing branches. Currently
the most active is HSBC which has closed 111 branches since 1
January 2009 and continues its attack on communities where it
is the last bank or will leave another in that situation. NatWest
has closed few recently but has reduced hours of opening (often
a prelude to closure) in 80 communities over the same period.
Lloyds formally abandoned in 2006 its pledge to remain open where
"last bank" and is currently closing the remining 265
Halifax agencies which are often in communities with little or
no banking competition.
IMPLICATIONS OF
FINANCIAL CRISIS/CONSOLIDATION
1. Britain's banks and building societies
had already experienced very considerable consolidation, compared
to other countries, even before the recent crisis.
2. Having lost all its independent local
and regional banks prior to 1970, the UK retail banking market
is very dependent upon a few, largely multinational, names which
make arbitrary decisions on branch closures and take little or
no account of community opposition.
Example
The 15,000 population town of Shepshed, Leicestershire
has lost its four retail banks, HSBC was the last to close in
January 2007, but the local Shepshed Building Society remains,
regrettably unable to offer current or small business accounts.
Even this low level of provision, with no competition,
is unlikely to be sustained as the smaller building societies
are acquired by larger ones as a result of the crisis and experience
shows such locations to be vulnerable to closure.
Example
Lloyds closed the only bank branch in Ramsbury, Wiltshire
in 2000 leaving only the Ramsbury Building Society, founded 1856,
which later was acquired by the Portman Building Society which
closed the Ramsbury branch in 2002 before it was itself acquired
by Nationwide.
3. In 2005 the last of Britain's regional
banks, Yorkshire and Clydesdale, owned by National Australia Bank,
closed 100 branches, 22% of its network.
4. Post crisis these trends are likely to
continue.
5. The EU Competition Directorate having
imposed branch sell-offs on government backed RBS and Lloyds,
the prospect of this producing significant new competition looks
extremely doubtful. However the acquisition of the 311 branch
RBS network outside Scotland has the potential to give Santander
sufficient critical mass in the small business market to make
a difference but Santander's network, even after incorporation
of the RBS branches, will not significantly alter the competitive
position in sole and dual bank communites. The c 250 Lloyds TSB
branches in England to be sold have yet to be identified but will
not comprise a viable network on their own.
BARRIERS TO
ENTRY
1. New entrants to the full service UK retail
banking market face a considerable challenge, not least the still
extensive branch networks of the established Big Four and the
tradition of "free" banking for personal current accounts.
2. A physical staffed presence "on
the high street" is still important to customers of the established
banks and to potential customers of new entrants to the retail
banking market. The reasons include:
— Secure
convenience for deposit of cheques and cash, their acknowledgment
and instant entry into the banking system.
— Convenience
for withdrawing larger sums of cash in secure surroundings and
specifying denominations, including change provision.
— Convenient
human point of contact for resolving problems with existing accounts,
opening new ones and producing identity documentation.
— Convenient
and private facility for discussion of financial product needs
with the bank's relationship managers and specialist advisers.
— Reinforcement
of confidence in an institution entrusted with one's funds.
3. That the bank concerned should have,
or have access to, a national network of branches is important
to individuals and especially to SMEs in a society that is increasingly
mobile. A presence convenient to employment and home, moving home
or business location, changing job, travel for business or pleasure,
adding business sites, acquiring additional or replacement businesses.
These and similar events should not, of themselves, necessitate
a change from an established banking relationship.
4. In view of its Bank of Ireland financial
services partnership agreement the Post Office is not seen as
a neutral network, has question marks over service delivery standards
and in any event could not cope logistically with small business
agency counter traffic on behalf of the major banks.
ISSUES REQUIRING
ATTENTION
Inter Bank Agency Arrangements
Facilitates use of a local bank's counter by small
business customers of other banks (established and new entrant),
thus preserving competitive choice and helping to sustain existing
branches and the communities they serve.
1. The absence of a convenient branch of
the account holding bank, or an easily accessible agency arrangement
with another bank on "fair, reasonable and non-discriminatory
terms" (Competition Commission 14 March 2002), significantly
reduces the SME opportunity for a new entrant bank or smaller
bank seeking to expand. For branch dependent customers in communities
with only one or two banks it also militates against customers
switching accounts and relationships between the established Big
Four.
2. An improved and promoted IBAA service
could help in both the above circumstances. The banks' failure
to meet their commitment to improve the awareness and operation
of IBAAs (14 March 2003) was confirmed by OFT research in 2007
which found only 25% awareness amongst those who might benefit.
See attached chronology.
Neutral Shared Branching
Basic counter and related services, to agreed operating
standards, delivered by a third party provider(s) on behalf of
participating banks through a variety of delivery channels - retail/social
enterprise franchises, mobile vehicles, community banks and banking
centres - as appropriate to each community and locality. The model,
which uses existing common technology, can replace existing branches
and make it cost-effective to establish an "open to all"
banking presence in new communities.
3. A step further would be the introduction
of neutral shared branching in secondary and tertiary locations,
although it could be argued that transactional activity and cash
handling has become a commodity service in the eyes of the banks
in which case the CCBS model has the capability to be extended.
Regrettably the banks continue to oppose any proposals for experimentation
of this model which has been academically validated in the UK
as "operationally feasible and financially viable" and
is successfully operated in a retail banking context in 45 US
States. Full details in "Bank Closure Problems—One
Solution Fits All" available in the REPORTS section of the
CCBS website www.communitybanking.org.uk
4. To aid competition further the UK should
consider following the example of other European countries and
recognise the existence of local markets for banking competition.
As recently as 21 December 2007 the Competition Commission confirmed
its view that in the UK retail banking is a national market.
Example
In 2006 the merger of Banca Intesa with SaoPaoloIMI
in northern Italy resulted in the Italian competition authorities
enforcing the sale of 193 Intesa branches (plus two savings bank
subsidiaries) to preserve local competiton. The branches were
acquired by Credit Agricole of France to enlarge its presence
in Italy.130 branches of Banca Monte dei Paschi di Siena are currently
being negotiated for sale to a foreign bank to satisfy anti trust
concerns arising from its purchase of another northern bank, Antonveneta.
5. In the USA the Community Reinvestment
Act imposes, inter alia, service obligations on licenced banks
which lead to the retention of local bank branches; a poor CRA
record can block bank mergers and acquisitions requiring State/Federal
approval. The UK possesses no legislative teeth to ensure banks
continue to service communities adequately.
6. It is of concern that Cabinet
Office Minister Nick Hurd MP is reported (Regeneration & Renewal
interview 12 July 2010) as having no plans to introduce CRA type
legislation and CCBS urges government to reconsider this urgently
as legislation of this type would provide a suitable vehicle to
impose social obligations on banks.
August 2010
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