Report jeopardises RBS-NatWest deal

The Cruickshank banking review could throw a spanner in the works of the £21bn Royal Bank of Scotland-NatWest merger announced last month.

Don Cruickshank, head of the review team, yesterday called on the government to clamp down on "anti-competitive mergers" in the banking industry, and indicated he believed the RBS-NatWest link-up should be referred to the competition commission.

Both institutions are leading players in the provision of banking services to small businesses, a market which is already very concentrated - NatWest, Barclays, Lloyds TSB and HSBC hold more than 80% of all small and medium-sized enterprises accounts.

NatWest and RBS have a especially strong presence in the north-west of England.

Mr Cruickshank said he would expect the merger "to be of particular interest to the competition commission" if the government decided to follow his recommendations.

The review document recommends "a stronger policy framework for government's approach to banking services which prevents anti-competitive mergers in the banking industry". In their reform of merger law, ministers should ensure that the proposed new competition-based test for assessing mergers takes full account of a range of factors so as to ensure consumers receive a fair share of the benefits.

In the meantime, the government should refer all mergers between financial institutions to the competition commission.

Main points

The Cruickshank review also recommends:

1. Regulating the payment systems operated by the banks such as cash machine networks, and the clearing scheme for cheques. The review proposes that banks wishing to be part of a payment system would have to obtain a licence from the Treasury. It suggests the creation of a new regulator, PayCom, which would be independent of the industry and other regulators, whose job it would be to monitor compliance with this new regime.

2. That the government should consider setting up an independent "financial services consumer council" covering all financial services. "There is a need for a strong, independent consumer voice at the heart of the regulatory system," it states.

3. Improving the complaint-handling procedures both for personal and small business customers, with "clear and objective standards" for banks to be judged against.