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The Future of the UK Retail Banking Market: A New Landscape

Datamonitor
May 21, 2009
264 Pages - SKU: DFMN2272564

Abstract Table of Contents Search inside this report Related Reports

Countries covered: United Kingdom

The effects of the financial crisis will leave a permanent scar on the face of the UK retail banking landscape. This will lead to the introduction of a series of regulatory measures that could potentially lead to wholesale changes in the UK retail banking market. The crisis will also have a large effect on consumer attitudes to financial services.

Scope

Assesses and scores the likelihood of different regulatory proposals to be put into practice.
Uses Datamonitor's Consumer Trends Survey to understand the recent change in consumer attitudes and how this is likely to impact the market.
Discuss future scenarios that look at how the retail banking market will cope under two contrasting regulatory regimes.

Highlights

Datamonitor predicts the UK banking environment will remain risk averse and conservative over the next five to ten years. The market is set to be presented with more stringent rules, meaning that financial institutions will be faced with curbs on their undertakings.
Online price comparison sites, which are generally subjected to less regulation than banks and building societies, are currently the most trusted financial institutions. Banks and building societies can learn from how online price comparison sites focus on the speed, convenience and transparency aspects of their service.
Datamonitor interviewees recognized macro-prudential measures as a key factor in the future of regulation in the UK. A macro-prudential framework essentially looks to restrain the build up of imbalances in the financial system. One of the key ways in which this is done is through a closer relationship between the regulators and the central bank.

Reasons to Purchase

Gain an insight into which new regulatory measures are most likely to be introduced.
Prepare for the impact these measures will have on the future of retail banking in the UK.
Delve into the mindset of consumers as they adapt to the new retail banking environment.

DATAMONITOR VIEW
CATALYST
SUMMARY
ANALYSIS: Datamonitor predicts the UK banking environment will remain risk-averse and conservative over the next five to ten years; Lessons can be learned from past mistakes in retail banking; The current crisis is likely to result in a significant increase in the amount of regulatory intervention; Regulators are set to impose strong and potentially cumbersome regulation on financial institutions; Each proposed regulatory reform has been scored on its likelihood of implementation; The regulatory authorities are set to bring in a raft of macro-prudential measures; Macro-prudential policy will be pushed to the forefront of new regulatory principles; Counter-cyclical capital buffers would put a constraint on lending during an economic boom; Micro-prudential measures for individual institutions are high on the agenda for regulatory reforms; An overhaul of mandatory capital and liquidity ratios will restrict lending; The current regulatory reform will lead to more international cooperation on regulation; Increased regulation of cross-border activity will limit the number of foreign-based competitors in the UK; The collapse of Landsbanki and the Icelandic banking system has led to calls for reform of the system; Overzealous regulation could have a damaging impact on London as a major financial center; Banks must prepare to deal with regulation that will limit their power and may see talent moving abroad; Adjustments to the tax regime could lead to an exodus of top talent; Individual product regulation is generally seen as too distortive to be beneficial; Individual product regulation is too distortive for it to be introduced effectively; Regulators look set to come down hard on hedge funds and short sellers in an attempt to curb risk taking; The current crisis has been blamed on excessively risky activities and hedge funds look set to bear the brunt of regulation; More intrusive regulation and increased communication with consumers are other measures that regulators are keen to enforce; Intrusive, direct regulation is an important change that will have a significant impact on banks; Consumer attitudes show a fundamental change in their views towards financial services providers; Consumers are reducing the amount of credit they use; Consumers are looking to save more and cut down on their credit card spending; Consumers are aware of what they should be doing during the recession although it remains to be seen how many will reach their goals; Consumers trust online price comparison sites more than banks and building societies; The future banking environment could vary significantly depending on the extent of the new regulation that is introduced; Under a conservative scenario tight regulation makes life difficult for banks and consumers; Economic growth will be tempered by a more restrictive regulatory regime; Tougher regulation is not an unconditionally positive step regarding the level of competition in retail banking; Consumers would find more restrictions in place on their banking activities; More direct regulation will play a part in encouraging banks to improve their service and raise consumer welfare; Under a liberal scenario banks will enjoy slightly more regulatory freedom, which should be beneficial for the economy; The economy will rebound more quickly but regulators will need to be careful not to let it overheat; The level of competition may suffer if measures are not taken to curb dominance; Consumer welfare can be augmented through a subtle yet more hands-on approach than before; A liberal regulatory model could lead to a return to excessive credit if it is not managed effectively
APPENDIX: Supplementary data; Definitions; Credit default swap (CDS); Glass-Steagall Act; Macro-prudential regulation; Micro-prudential regulation; Methodology; Further reading; Ask the analyst; Datamonitor consulting; Disclaimer
List of Tables: Table 1: Impact of potential macro-prudential regulatory measures; Table 2: Impact of potential micro-prudential regulatory measures; Table 3: The impact of cross-border regulatory measures; Table 4: GFCI index of top financial centers, 2007-2009; Table 5: The impact of individual product regulation; Table 6: The impact of measures to curb excessive risk-taking activities; Table 7: The impact of other regulatory measures; Table 8: Lending to individuals, Q1 1988-Q4 1996; Table 9: Lending to individuals, Q1 1997-Q4 2005; Table 10: Lending to individuals, Q1 2006-Q3 2008; Table 11: Household debt as a proportion of income, 1987-2007; Table 12: GFCI index of top financial centers, 2007-2009
List of Figures: Figure 1: Total lending experienced strong growth between 1992 and 2004; Figure 2: Household debt as a proportion of income fell away after the recession of the early 90s; Figure 3: The majority of consumers do not intend to use credit to fund their lifestyle; Figure 4: The majority of respondents said they plan to save more in the future; Figure 5: The majority of respondents had saved more over the last six months; Figure 6: Banks and building societies rank among the most trusted financial institutions

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The Future of the UK Retail Banking Market: A New Landscape

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