Lending decision making and the Competition Commission report on the provision of banking services to small firms
| Pages | 26-36 |
| Date | 01 March 2003 |
| Published date | 01 March 2003 |
| DOI | https://doi.org/10.1108/13581980310810381 |
| Author | John K. Ashton,Kevin Keasey |
| Subject Matter | Accounting & finance |
Lending decision making and the
Competition Commission report on the
provision of banking services to small firms
John K. Ashton* and Kevin Keasey
Received: 21st June, 2002
*School of Management, University of East Anglia, Norwich, Norfolk NR4 7TJ, UK;
tel: +44 (0)1603 591178; fax: +44 (0)1603 593343; e-mail: J.Ashton@uea.ac.uk
Dr John K. Ashton is a lecturer in regula-
tion in the School of Management at the
University of East Anglia. John is also a
member of the Centre for Competition and
Regulation at the University of East Anglia.
Professor Kevin Keasey is Director of the
International Institute of Banking and
Financial Services at the University of
Leeds.
ABSTRACT
This paper examines the Competition Commis-
sion report on the provision of small and
medium-sized enterprise (SME) banking ser-
vices in the UK. The examination will centre
on the perceived clash between the ‘remedies’
proposed by the Competition Commission and
the present forms of lending decision making, a
key function in business banking. It is concluded
that the Competition Commission assessment of
the provision of banking services by clearing
banks to small firms, directs scant attention as
to how banking services are ‘manufactured’ or
banks actually make decisions and operate in
practice.
INTRODUCTION
On the 14th March, 2002, in the UK the
Competition Commission, the UK anti-
trust regulator, released the report ‘The
supply of banking services by clearing
banks to small and medium-sized enter-
prises’.
1
This report was highly critical of
the major UK clearing banks, suggesting a
complex monopoly prevails in the supply
of banking services to small and medium-
sized enterprises (SMEs). The Competition
Commission reported that excess profits of
£726m have been earned by the big four
UK clearing banks (HSBC, Natwest, Bar-
clays and Lloyds/TSB) in the provision of
banking services to SMEs in England and
Wales, between 1998 and 2000; a position
deemed to work against the public interest.
The remedies proposed by the Competi-
tion Commission to ameliorate these per-
ceived problems have also been as dramatic
as the initial conclusions. To counteract the
perceived complex monopoly in the
supply of banking services to SMEs the
Competition Commission has recom-
mended measures to alter substantially the
present conduct of clearing banks. These
recommendations include sanctions termed
behavioural ‘remedies’ by the report and a
system of price control, to reduce the prof-
itability of supplying SME banking ser-
vices. The behavioural ‘remedies’ will be
used to improve the ability, or perception
of ability, for SME customers to ‘switch’
accounts between suppliers, increase trans-
parency of pricing and ‘un-bundle’ product
provision. As stated the other ‘remedy’
Page 26
Journal of Financial Regulation and Compliance Volume 11 Number 1
Journal of Financial Regulation
and Compliance, Vol. 11, No. 1,
2003, pp. 26–36
#Henry Stewart Publications,
1358–1988
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