The European Commission has identified serious competition concerns in the retail banking sector in Europe and may pursue anti-trust cases against several EU states.
Ireland is one of a dozen EU states criticised for stifling banking competition in a report due to be published by competition commissioner Neelie Kroes tomorrow.
The report, which is a result of an 18-month investigation into the retail banking sector, highlights competition concerns in the card payment sector and co-operation between banks in the clearing process as significant concerns in the Republic.
It pinpoints membership rules in the Irish credit card sector that reserve the right of issuing to financial institutions as limiting the participation of merchants and other processors in the issuing of cards. The national system in the Republic also requires the local presence of a foreign entrant through a local branch. This increases the cost to new entrants from abroad and limits competition in the sector, according to a copy of the draft commission report.
The commission cites Belgium, Denmark, Finland, France, Italy, Luxembourg, the Netherlands, Portugal, Spain and Hungary for limiting competition in this area.
Ireland is also criticised for maintaining the existence of bilateral clearing arrangements between local banks. These types of bilateral clearing systems mean that new entrants have to find a sponsoring bank for transaction clearing.
However, in general, existing banks are not keen on assisting potential competitors, notes the report, which concludes this system makes market entry difficult for new entrants.
The commission's investigation follows a report issued last year, which found that Irish retail banks were among the most profitable in Europe. In 2004 the Competition Authority also found the Irish banking sector was not competitive.
The draft report to be published tomorrow recommends a number of steps to strengthen banking competition, including initiating anti-trust investigations. It says areas of potential action include the payment card networks, clearing and settlement, discriminatory rules, barriers to access, fee structures and governance arrangements.
The commission and national competition authorities could take action.
It also concludes that action is needed in four key sectors from the commission and national competition authorities: the design and operation of payment systems; credit registers; co-operation between banks; and the setting of banks prices and policies.
"The European Commission will not hesitate to exercise its powers of enforcement," concludes the report, which notes that the sector supports three million jobs in the EU.
In 2004, the retail banking sector, which is the most important sector for consumers and small business, generated gross income of €250 billion to €275 billion, or about 2 per cent of EU gross domestic product.
