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* Watchdog unlikely to recommend bank break-ups
* Findings due to be published next Thursday
* Executives at smaller banks want more transparency
* Scrapping 'free' banking seen as politically unpalatable
By Matt Scuffham
LONDON, Oct 16 (Reuters) - Britain's competition watchdog islikely to call for bank charges to be made clearer when itpublishes the findings of an investigation into the industrynext week, banking sources say.
The Competition & Markets Authority has been investigatingthe market for personal current accounts and small businessbanking services since November last year and is due to publishits provisional recommendations next Thursday.
Lawmakers and regulators are keen to break the dominance ofBritain's 'big 5' banks -- Lloyds, Royal Bank ofScotland, Barclays, HSBC and theBritish arm of Spain's Santander -- which control 85percent of the personal current account market and provide morethan 9 out of 10 loans to small businesses.
However, the watchdog is expected to resist calls for bigbanks such as Lloyds and RBS to be broken up and will insteadfocus on pricing and measures to encourage switching betweenlenders and make it easier for new banks to compete.
Executives at so-called "challenger" banks have this weekcalled for changes in the way banks charge for services.
TSB Chief Executive Paul Pester said banks should berequired to tell customers how much they've paid for theirbanking services each month.
Pester said TSB's internal research had suggested Britishbanks make between 7 billion and 8 billion pounds ($11-12billion) each year from personal current accounts even thoughaccounts are presented to customers as "free" and withoutmonthly fees.
The banks make money because interest rates on personalcurrent accounts are often lower than the levels offered withsavings accounts or the benchmark rate set by the Bank ofEngland. Customers are also charged for going overdrawn withoutpermission and for making certain transactions.
"There is a myth of it being free which is about makingcustomers feel they don't need to switch. I don't understand howsomething that is free generates 7 to 8 billion pounds a year,"Pester told Reuters.
FEES CAPPED?
Virgin Money Chief Executive Jayne-Anne Ghadia told Reutersso-called "free banking" distorts the marketplace but questionedwhether there would be the political appetite to take it away.
Industry experts agree that such a move might proveunpalatable for politicians.
"MPs might have to explain to their lower middle incomeconstituents why they now have to find around 50-120 pounds perannum to pay for a current account that for most part has beenfee-free for decades," said Peter Hahn, senior lecturer infinance at Cass Business School.
Banking sources say the CMA could recommend a cap on thefees that banks can charge but such a move would not be popularwith new banks.
"To me that plays right into the hands of the big banks,"said Pester. "They're sitting on millions of customers and whatbetter way for them to reinforce their position by being able tocharge those customers a certain amount a month."
The watchdog has examined the possibility of enablingcustomers to switch banks while keeping the same account numberand whether rules allowing customers to switch banks within 7working days have been effective, the sources said.
The CMA has also reviewed competition in small businessbanking. Many small firms find it hard to move banks becausethey cannot take overdraft facilities with them to a new lender.The findings could look at ways to make that easier. ($1 = 0.6475 pounds) (Reporting by Matt Scuffham; Editing by Keith Weir)
