The Economics of Retail Banking - an Empirical Analysis of the UK Market for Personal Current Accounts

7 Pages Posted: 7 Apr 2005

See all articles by Céline Gondat-Larralde

Céline Gondat-Larralde

Bank of England, Centre for Central Banking Studies

Erlend W. Nier

International Monetary Fund (IMF)

Abstract

Understanding the economics of retail banking is important for the Bank of England in carrying out both its monetary stability and its financial stability function. In this article, we study the dynamics of the UK market for personal current accounts between 1996 and 2001. Analysing the evolution of banks' market shares and their pricing strategies, two questions are addressed: (i) Do bank market shares respond to price differentials? (ii) If not, why not? Our results point to customer switching costs as a key determinant of the nature of competition in the market for personal current accounts during the 1996-2001 period. They are thus broadly supportive of a number of initiatives that have since been undertaken to reduce such costs.

Suggested Citation

Gondat-Larralde, Céline and Nier, Erlend W., The Economics of Retail Banking - an Empirical Analysis of the UK Market for Personal Current Accounts. Bank of England Quarterly Bulletin, Summer 2004, Available at SSRN: https://ssrn.com/abstract=700126

Céline Gondat-Larralde (Contact Author)

Bank of England, Centre for Central Banking Studies ( email )

HO7, B-D
Threadneedle street
London, London EC2R 8AH
United Kingdom

Erlend W. Nier

International Monetary Fund (IMF) ( email )