London Letter / Chris Johns: One puzzle facing the UK competition authorities is that apparent cut-throat competition in British banking is tough to reconcile with the extraordinary levels of profitability of the high-street banks. In the mortgage market, for example, there are close to 100 lenders now operating in this country and all of them seem to be able to make a healthy living.
Indeed, there are plenty of foreign bankers who still think there is good money to be made by competing to lend money to those few individuals not already mortgaged to the hilt.
But it is to the big five high-street banks that we must look to find the true money machines: profitability remains fabulously high, although there are one or two signs of stress.
Barclays, for example, manages to achieve a return on equity in the high teens, something some analysts believe is not sustainable if the banking market really is as competitive as it looks.
But that supposedly tough environment still allowed Barclays to grow its earnings by around 25 per cent last year.
Just how competitive British banking is remains a moot point. Customer inertia is still relatively high which might explain why people are slow to switch to cheaper providers of loans or to banks that offer higher rates on saving products. The banks have had to be dragged kicking and screaming into allowing easy transfer of accounts and have been gratified to find that customers are not that bothered.
Perhaps it is just a matter of time: banking margins are under pressure, people are beginning to shop around more. Give it a few years and those levels of profitability will be eroded down to something approaching normal levels.
We can hardly expect the banks to sit there and happily accept the destruction of their fat margins. The traditional response has been to merge - that's why we have five big banks. Indeed, the banks would love to merge again and would be quite happy to create one or two banking giants.
But the Treasury, with both eyes fixed firmly on those monopolistic profit margins, has told the various bank executives to dream on. The government will not allow any more domestic mergers.
Lloyds TSB has flirted with Deutsche Bank but this has come to nothing; cross-border mergers in Europe remain the exception rather than the rule and successful ones are as rare as hen's teeth.
So the banks are left to dream up other ways of growing the bottom line. In the absence of any good ideas we can always rely on management to announce a new plan to "refocus on customers".
And there is always cost cutting. Anyone who wonders why management quality is so low in so many institutions should look at criteria for promotion.
In many banks it is the cutter of costs that gets to the top rather than the revenue generator. The two types have very different mentalities.
British banks have already cut costs to the bone. If I go into my local branch and try to do anything other than pay money in or out, all I get is a look of fear in the eyes of the bank staff.
They simply cannot cope with anything other than routine transactions.
And forget about trying to phone your branch. NatWest is conducting a major promotional campaign advertising a proud boast that you can still talk to somebody in your branch over the phone - what should be taken for granted is now reckoned to be a mark of superior service. And there is still more than a hint of suspicion that the "branch" you end up talking to is, in fact, a call centre.
Technology will eventually mean that most bank branches will disappear. When that process is well under way, the Treasury will have to rethink its opposition to mergers: competition will, finally, be so intense it will make perfect sense for the big five to become one.
I suspect that the days of super-charged earnings growth are, for now, over for the big banks. They remain profitable, rock-solid institutions, but in the absence of merger possibilities they are, in stock market terms, ex-growth.
