Breaking up U.K. banks to enhance competition may create weaker lenders and potentially increase the cost for taxpayers, according to a report published by Bain & Co.
An unstable banking industry would cost taxpayers 1,000 pounds ($1,570) a head as a consequence of reduced output and higher unemployment, consulting firm Bain estimated in a report released today. That compares with a cost of about 200 pounds a head resulting from insufficient competition, Bain said.
“Policies that promote competition by encouraging new entrants and even splitting up the big banks could compromise stability, leading to smaller and even weaker banks,” said the report. Regulators “should focus on measures that reinforce stability,” it said.
The government-sponsored Independent Commission on Banking is examining whether to recommend break up British banks in an effort to increase competition and financial stability. The commission, led by John Vickers, an Oxford academic and former Bank of England economist, reports in September.
“The incremental benefits to consumers from increasing the number of leading players diminish rapidly,” based on an analysis of banking in 30 countries, Bain said.
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