Bank review 'explosive

The man heading the government's banking review is expected to unleash a harsh attack on the industry next week and recommend that some practices be referred to the competition commission for anti-competitive behaviour.

Don Cruickshank, appointed in November 1998, is expected to accuse high street banks of making excessive profits and to propose a series of measures to break the monopolies operating in the smaller business banking market and the clearing system for cheques.

Government sources say the report - to be published on Monday - will be "explosive". Sixteen months in the making, the report could have a dramatic impact on the banks' share prices, which have taken a pounding in recent months.

Mr Cruickshank is also expected to announce moves to make it easier for customers to move their bank accounts, and is set to fuel the already highly charged row over cash machine fees by giving some degree of support to the concept of surcharges for people who use the machines at banks where they are not customers.

Members of the Link cash machine network prompted an outcry last month when they backed moves to introduce surcharges for non-customers who use their machines. They later agreed to ban double charging, whereby people using other banks' machines face both a "disloyalty charge" from their own bank and a surcharge from the one that owns the machine.

Mr Cruickshank has already said customers should have to pay no more than 30p. His report is expected to say there is a definite cost to providing cash via an automatic teller machine (ATM), and it is unreasonable to expect this to be free all the time. Crucially, it is likely to say that if it is a choice between a surcharge and a disloyalty fee, a surcharge would be better. This would put him at loggerheads with several leading high street institutions which are opposed to any charges whatsoever, and also the office of fair trading, which believes surcharging is inherently wrong.

The review was set up by the chancellor, Gordon Brown, to look into competition and innovation in the industry. Some banking sources say it is possible the chancellor could take immediate action on some of the recommendations in the budget on Tuesday.

There have been mixed messages about the report. Some bankers claimed to have been told that rather than attacking the sector it would present a picture of a competitive and innovative industry.

One source said: "I would not put it past him to surprise us. I think he would like to surprise people if he can."

An area where Mr Cruickshank might say further investigation is needed into potentially uncompetitive behaviour is in the provision of services to smaller firms, a market dominated by the big clearing banks, particularly NatWest.

Another is the system for transmitting money around the system. Mr Cruickshank believes the Association for Payment Clearing Services, which runs Bacs, the body responsible for transferring payments in and out of bank accounts, operates as a monopoly.

One industry source said he suspected Mr Cruickshank "would have something to say about competition. He has already tried one attack and that seems to have not quite hit the mark." Mr Cruickshank last year proposed that the FSA, the City watchdog, should be given a separate competition objective, a suggestion Mr Brown has not yet embraced.