UK bank services for small business: How competitive is the market?

This study is the first to employ an econometric model to examine the pricing behaviour of British financial institutions with respect to key bank products/services offered to small and medium sized enterprises (SMEs) including current accounts, investment accounts, business loans, and mortgages. A mean group approach is used on a panel of monthly data to gauge individual banks' reactions to identify factors influencing the setting of deposit and loan rates, and to assess the competitive structure that best describes the UKs SME banking market. Though the results should be interpreted with caution, the empirical evidence is suggestive of a complex oligopoly. Policies directed at improving information and making it easier for small businesses to change banks/accounts would reduce inertia and improve competition among financial institutions. (c) 2006 Elsevier B.V. All rights reserved.