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Brussels Finds Barriers to Retail Banking Competition

Doyle, Barlow & Mazard PLLC

On July 17, the Commission published its second Interim Report in relation to the retail banking part of its sectoral inquiry into the financial services sector in the Community. The first Interim Report dealt with the payment cards and the second Report covers Current Accounts and Related Services.
The purpose of the investigation was to uncover and address any anticompetitive practices and market failures within the retail banking sector. Although the Commission did not directly identify any breaches of competition law in the Interim Report, it found that there were severe barriers to competition and market failings in retail banking sector, including:

? wide fragmentation of service provision along national lines, which led to discrepancies in the cost of service delivery across the Community;
? extensive barriers to market access for start up banks;
? inter-bank payments that are excessively fragmented and, as a result,
excluded banks entering other member states;
? reluctance of clients to switch banks, and low levels of switching, which it is suggested may be due to high costs and lack of alternatives;
? varying profitability from state to state; and,
? the cost of banking services differs drastically from one member state to another.

Following its findings, the Commission held a public consultation on this report, which was open until October 9, 2006.

In parallel, the Commission is currently reviewing the responses it received to its 1st Interim Report – Payment Cards, and is aiming to publish a final report on this part of its inquiry by the end of the year. In the meantime, it is encouraging banks to review their practices and improve those practices that the Commission identified as possibly anti-competitive. It is less clear how to deal with the problems that the Commission identified in the retail banking sector. Competition Commissioner Neelie Kroes stated that the Commission hopes that industry participants will use the public consultation period to tell the Commission more about the barriers to fair competition in the sector, so that they can work together to find a solution.

For more information contact:

Nicholas Wetzler

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