The concerns come from a debate held at the Westminster Business Forum last week on the future of the retail banking market and highlighted points made by the recent investigation into the sector by the Competition and Markets Authority (CMA).

Alasdair Smith, independent chair of the CMA’s Retail Banking Market Investigation, faced questions as to whether he was proud of what the report had achieved, but insisted there had been some positive feedback.

Criticism was made by other panellists including Jon Hall, managing director of Masthaven Bank, who had concerns over the lack of emphasis the report had on tackling capital requirements of challenger banks.

“It can’t be right that there is multiple more times capital requirement in a challenger bank as there is in a larger bank as it drives the wrong type of behaviour across the board.

“Until you get better access to similar capital deployment, then you aren’t going to get the sort of change that you want within the retail banking market.”

Alasdair did have sympathy towards the problems raised by Jon and said the CMA did look very hard at the issue.

“But the fact is we have no power to do anything other than give the Bank of England and the PRA [Prudential Regulation Authority] the benefit of our views and the Bank of England doesn’t have the power to change capital rules, the Bank of England has to go to Brussels and Basle and discuss these rules so it wasn’t a problem we could solve.”

Meanwhile, Caroline Barr, member of the Financial Services Consumer Panel, felt we could never know the benefit of breaking up the big banks.

Alasdair defended the CMA’s decision not to call for the break-up of big banks.

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“We did consider breaking up the big banks, we looked at it and decided that for reasons which are outlined in the report that it would not be a sensible thing to do because of the very high costs.

“Just think RBS and Williams & Glyn.”

Steve Smith, director of retail competition and regulatory strategy at Lloyds Banking Group, felt the CMA had laid down foundations for a big change and felt entry into the retail banking market was much easier and explained how a level playing field could be achieved.

“One silver lining on the cloud of Brexit is that one opportunity it does create is that it could create a level playing field on capital.

“So it should afford the opportunity for us to actually say whether you’re a very large established bank or whether you’re a small new entrant, you can actually compete on equal terms.”

Jon, however, expressed concerns about the level playing field between banks and challenger banks.

“We all love an underdog and everyone can respect the pluckiness, but there is no level playing field and I think that the CMA and the FCA are trying to create that diversity.

“But if that diversity and level playing field isn’t there, then independence is a very challenging thing to do and we could just be swept up and nobody wants that.”

Alasdair addressed these concerns by stating that the CMA would look very hard at any potential take over from a major bank towards a challenger bank, but was in favour of medium-sized acquisitions.

“…I think it would be a fair assumption that if one of the big four banks was to take over a challenger bank, the CMA might look at that quite hard.

“But one of the observations made in the report is that mergers between banks at a particular level of the market are not necessarily a bad thing.

“Small banks do struggle and some of the strongest competition in the current banking market has come from mid-sized players who are the results of mergers.”