OFT has published its report to the UK Government on the impact of Lloyds and RBS divestments on competition in the retail and SME banking sector. The report contains recommendations to strengthen this impact by enhancing Lloyds' divestments:
- services arrangements between Lloyds and its divestment should provide the appropriate quality for the right cost, and contain an appropriate break clause;
- the divested entity should be strengthened financially, possibly through a direct injection of capital from Lloyds; and
- the divested entity should be capable of reaching 4.6% of the personal current accounts market, by providing it with an option to acquire further branches at a later date or with greater resources, in line with the second recommendation above, to develop its own branch network.
Regarding RBS, the report concludes that its divestment does not need further enhancement to grow and compete in the SME banking market. The report also notes that, in 2014, OFT will deliver its market study into SME banking. It will also respond to the Independent Commission on Banking's suggestion that OFT should consider making a market investigation reference by 2015 if competition in the retail banking sector has not improved by then. (Source: Letter from OFT to Chancellor)