Up until recently, the retail banking industry has enjoyed many years of strong growth, prompted by a booming economy, high consumer confidence, low unemployment, rising house prices and strong consumer spending. Fuelled in part by a boom in consumer credit – cheap and easily available – everything changed in mid-2007 when the US sub-prime housing sector collapsed, resulting in huge losses for banks and nailing shut the market for mortgage-backed securities. Providers must look to how they raise capital and retain customers if they are to weather this storm.

So far we have witnessed the nationalisation of Northern Rock along with that of Bradford & Bingley’s mortgage book, HBOS looks set to merge with Lloyds TSB, Nationwide has come to the rescue of two smaller building societies, and Alliance & Leicester has being scooped up by Santander along with the savings business of Bradford & Bingley. The global banking system is in chaos, and consumers are scared, but banks still have a business to run. The challenge now is funding that business, as well as finding a way to wean consumers off their addiction to cheap and easy credit.

This report looks at the current economic situation and the events that have led to the turmoil in the financial sector. It also assesses the internal retail banking environment – income streams, cross-selling, switching, overdraft charges, product diversification and so on. Each of the core markets – current accounts, savings, mortgages, credit cards, personal loans and general insurance – are looked at in terms of market size, market share and key developments. The main players in the sector are analysed in a broad level overview before presenting the findings of the consumer research conducted for this report.

Key report themes:

Credit crunch continues to hit home.

Deteriorating economy and low consumer confidence prompt people to cut back.

The importance of cross-selling and impact of switching provider.

Tighter lending criteria – decline in the mortgage market and consumer credit.

Low liquidity in the banking system – banks reluctant to lend to each other.

Intense competition for retail savings deposits.