The five biggest banks in the UK are too powerful and should be forced to reduce the number of branches they operate by selling them to 'challenger' banks, Labour's leader Ed Miliband said in a speech today.
He said "too much power is concentrated in too few hands", as he addressed an audience at the University of London.
Miliband added that banks have been "an incredibly poor servant of the real economy" for years and should be putting the funding needs of businesses and creating jobs ahead of profits.
If his party wins power in the General Election next May, Miliband said his government would instruct the Competition and Markets Authority to advise on a limit as to how big a bank's market share should be.
Banks whose branches exceed the maximum level, should be forced to sell them to challenger banks by 2020, he said. Miliband added that his government would "turn the tide" of British retail banking by setting up two challenger banks to boost competition and give customers a better deal.
"Instead of you serving the banks, the banks will serve you," he said.
Improvement in competition
However, earlier this week, Mark Carney, governor of the Bank of England, said a cap on banks' market share "would not result in substantial improvement to competition".
Craig Donaldson, chief executive of Metro Bank, one of the newest banks to hit the UK high street, said: "A competitive market will only be achieved when new and existing banks face a level playing field; where it is the offering and proposition of the bank that leads to differentiation. True competition will only come through more entrants bringing diverse and differentiated models to the high street; consumers and businesses need real choice."
He added: "Improved customer confidence will significantly increase competition in the banking market, as banks will have to react by improving their service and offering to ensure customers are getting what they actually need and want."