View Point: UK Banking Industry

UK’s banking sector, following the US and Japan, is the world’s third largest and considered foremost in terms of: efficiency, dynamism and return on capital. It services 95% of the population with about 3.5% of UK’s total workforce - over a million workers. The decade ending 2005 witnessed a surge of three folds in assets to €5526 billion, lending and deposits more than two fold to €3284 billion and €4984 respectively. The financial sector’s productivity is growing at three times the pace of the economy and reflects an increasing share of the GDP. Last year, banks and financial services contributed £70 billion to the country’s national output, equivalent to nearly 7 percent of the country’s GDP – 100 % percent increase from 2003. UK leads as a major international center for investment and private banking, cross border banking and accounts for a fifth of global international lending; with banks in London handling a third of the global foreign exchange business.
Deregulation, Competition and Consolidation
UK’s banking industry has seen a radical transformation with market liberalization by deregulation and the resultant competition. The Building Societies Act of 1986 permitted building societies to widen their financial services to include insurance and allowed building societies to convert into banks. Life insurance firms moved into banking and banks diversified into mortgages and insurance.

Mergers and acquisitions has been the other transformational force in the UK banking industry. Till the late 1960s, retail banking was dominated by the ‘big-five’: Barclays, Lloyds, Midland, National Provincial and the Westminster Bank. While Midland Bank was acquired by Hong Kong and Shanghai Banking Corporation to create the current HSBC, National Provincial merged with National Westminster and was later acquired by Royal Bank of