Guardian News and Media

London

 Britain’s big four high street banks could be forced to break themselves up after the competition watchdog signalled its intention to launch a sweeping investigation into the £10bn-a-year sector.

Setting out its proposals for an 18-month investigation into the major banks, the new Competition and Markets Authority has gone further than its predecessors, which said they would wait until 2015 before considering such a move.

The big four - the two bailed-out banks Lloyds Banking Group and Royal Bank of Scotland, along with HSBC and Barclays, control 77% of current accounts and 85% of small business (SME) current accounts.

The CMA, launched in April to replace other competition watchdogs, has launched a consultation until mid-September on its provisional conclusion that both small business customers and personal current account customers do not have good service from their banks.

“Competitive personal and SME banking markets are essential to households and businesses throughout the country, and to the success of the UK economy. However, our studies have found that despite some positive developments, significant competition concerns remain which mean that customers may not be getting consistently good service and value from their banks,” said Alex Chisholm, chief executive of the CMA.

The investigation comes at a time when political scrutiny of the banking sector is intensifying.

Ed Miliband, leader of the opposition Labour party, had pledged to launch a competition investigation if elected next May.

The shadow chancellor, Ed Balls, said yesterday: “As we said earlier this year, in the next parliament we need to see at least two new challenger banks and a market-share test to ensure the market stays competitive for the long term.”

The coalition has embarked on a series of attempts to bolster competition, including making it easier for new banks to be set up.

The new investigation - if it is formally launched when the consultation ends on September 17 - will run beyond the next general election. It comes as the government plans to ask the public to buy shares in Lloyds, in which the taxpayer still has a 24% stake. It is not clear what impact this may have on the sale of shares in Lloyds, or RBS, in which the government owns an 80% stake.

The banks have been aware of the threat of a competition investigation since the 2011 report by Sir John Vickers and have attempted to head off a full-blown investigation by the CMA. The watchdog has rejected these ideas, which include: setting up a comparison website to improve transparency, establishing new account opening standards to make it easier for SMEs switching banks to open accounts, making it easier to compare bank accounts and switching.

Chisholm said the two-month consultation launched yesterday would be an opportunity for these so-called remedies to be considered.

The CMA found that customer satisfaction levels for the big four banks is 60%, but despite this there is very little shopping around by customers.

“We note, in particular, that the larger banks, with relatively lower satisfaction levels, have not significantly lost market share, while banks with higher satisfaction levels have not been able to gain significant market share, which is not what one would normally expect to find in well-functioning, competitive markets,” the CMA said.