COMMERCIAL-IN-CONFIDENCE
CONFIDENTIAL AND MARKET SENSITIVE
18 I accept that competition in this market sector has a strong local dimension and that branches have a significant role. Lloyds say that their local branch managers have discretion to lend sums of up to £500,000 (95 per cent of all loans to small businesses) without reference to higher authority. Thus a small business customer needing a loan will need to make his case at local branch level. Lloyds also advise that branch managers need to keep in close touch with their customers' businesses and with local market conditions in order to manage their lending effectively, and usually much prefer (if not require) the small business customer to use the branch for all his banking needs.
19 But I doubt whether such a disposal of branches to meet a competition concern is the appropriate remedy to meet our general concerns with reduced competition. of fundamental importance is the fact that there has been no opportunity for OFT to examine in sufficient detail such important aspects as: how difficult it is for small businesses to "shop around" for a loan from a bank they do not normally use; how a branch's "catchment area" should be defined (it may well vary between urban and rural areas, and from region to region or town to town, but the relationship is likely to be complex); whether it is easy to move an overdraft to a new bank; and the extent to which different branches of the same bank in a given area may compete with each other. Lloyds have provided some information on these points, and are prepared to provide more. But the answers are by no means self-evident, and we have no means of testing the matter objectively, certainly not within the sort of timescale (a few weeks) normally allowed for the obtaining of undertakings in lieu of reference. Furthermore, they ignore in my view the crucial fact that the policies of the banks are set at national or at best regional level and the merger would reduce the number of alternatives available among the major market leaders from four to three.
20 There are also a number of practical questions concerning how (and when) an undertaking of this kind could be implemented. Lloyds consider that a private Act of Parliament would be required to transfer accounts and staff from Midland to the new owner. Lloyds do not expect to be able to do this until autumn 1993 (they propose to manage the relevant branches for the new owner on an "agency" basis meanwhile, but it is far from clear how, or whether this would be
satisfactory).
CONFIDENTIAL AND MARKET SENSITIVE
5
COMMERCIAL-IN-CONFIDENCE