EU threatens banks with antitrust crackdown on retail barriers

Competition

The European Commission in Brussels have found evidence of anticompetitive practices in retail banking, stopping short of naming wrongdoers, in a preliminary analysis of its investigation posted on its Web site on Friday. The report said market characteristics may give rise to competition concerns such as the creation of artificial entry barriers and those practices or arrangements could be addressed by antitrust action. The commission, the EU's regulatory arm, is pushing to open up competition in banking as growing numbers of lenders look to expand abroad. Banks making acquisitions abroad in the past year include BNP Paribas SA of France, UniCredit SpA of Italy and ABN Amro Holding NV, the largest Dutch bank. Retail banking accounts for about 2.5% of gross domestic product in the 25-nation EU, generating income of between € 250 billion ($316 billion) and € 275 billion in 2004, according to the commission. The EU banking industry provided more than three million jobs that year, the regulator said.
By the report, European retail banking markets are still extremely fragmented and characterized by a range of entry barriers. Artificial barriers result from „specific regulation or conduct of firms and concern, for instance, access to networks or discriminatory fee structures. Markets are fragmented along national lines, according to the study. The Netherlands, Belgium, Sweden and Finland have the highest degree of market concentration, while Germany, Italy and Spain have the least. The more concentrated markets have fewer clients switching banks, according to the report, which said that consumers in Western Europe hold their current accounts for about a decade. Small businesses keep their accounts for about nine years, it said. Customer mobility „is essential to help realize the benefits of a competitive banking market,” said the report. „Banks' profitability tends to be lower in markets where customers are more mobile.” Banks in member states including Finland and Ireland were among the most profitable in the EU in 2004 with pretax profits of more than 40% of gross retail income, said the report. Banks in Austria and Germany were among the least profitable, it said. The retail banking probe, which also covers loans to consumers and small business, is part of a broader inquiry into financial services begun 13 months ago. The commission has asked banks to detail their services and prices, such as charges for opening and closing accounts, in a 24-page questionnaire seen by Bloomberg News. The probe has already led to an April 12 warning of possible antitrust actions against payment services providers. Building on an earlier case, the commission on June 30 publicly accused MasterCard International Inc. of restricting competition between banks by setting minimum fees for retailers to accept its payment cards. The regulator also is looking into business insurance and plans to issue a first report later this year. Final reports and policy recommendations on that subject, as well as payment services and bank accounts, are planned by yearend. Other antitrust work in financial services includes an examination of clearing and settlement of securities trades. The commission on May 24 warned Deutsche Boerse AG, operator of the Frankfurt stock exchange, not to impede competition for those post-trade administrative functions. The commission has been pushing EU nations to drop objections to cross-border competition even before opening the industry investigation. The agency added to pressure on the Italian government not to prevent ABN Amro from making its acquisition in the country, and is now planning legislation that would restrict regulators' power to block takeovers. (Bloomberg)

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