* CMA had power to recommend bank break-ups
* CMA says free bank accounts do not distort market
* TSB CEO says long way to go to improve competition
* Consumer group says measures are underwhelming
* Lawmakers to quiz CMA on findings on Nov. 4 (Adds comments from Treasury Committee chairman)
By Matt Scuffham
LONDON, Oct 22 (Reuters) - Britain's banks will not bebroken up or forced to ditch free banking services to improvecompetition in the industry, alleviating the fears of thecountry's dominant lenders.
The Competition and Markets Authority (CMA) insteadrecommended measures to make it easier for Britons to comparethe full costs of accounts, telling banks on Thursday to provideclearer information.
"Today's findings will probably be seen positively by thelarger banks as the CMA have not found evidence of excessiveprofits, have steered clear of proposing an end to free bankingand have not suggested further divestments," said Simon Hunt,PwC's UK banking and capital markets leader.
Regulators and lawmakers are keen to break the dominance ofLloyds Banking Group, Royal Bank of Scotland,Barclays and HSBC, which together control morethan three quarters of current accounts and provide nine out of10 business loans.
The competition watchdog launched a review of the market forpersonal current accounts and small business banking services inNovember last year.
In its preliminary recommendations, the CMA decided againstforcing banks to charge fees for customers who are in credit,saying it found no convincing evidence that free accountsdistorted competition.
So-called free banking has been criticised by consumer groups and lawmakers, who point out that banks make moneybecause interest rates on personal current accounts are oftenlower than the Bank of England's benchmark rate. Customers arealso charged for going overdrawn without permission.
"Free in-credit banking is a con trick and it isdisappointing that the CMA have decided that it should beallowed to continue," said Andrew Tyrie, chairman ofparliament's Treasury Select Committee.
"It seems reasonable that millions of customers should beallowed to know how much they are being charged for having abank account."
Tyrie said the committee, which scrutinises Britain'sfinance ministry and financial regulator, said it would takeevidence from the CMA on Nov. 4 and would also examine the CMA'sarguments for not breaking up big banks.
The watchdog said it identified a number of competitionconcerns. It pointed to low levels of switching by customers andsaid that new products and new banks did not attract customersquickly enough.
The CMA recommended that banks prompt customers to reviewservices they receive, make it easier to compare products,create a new price comparison website for small businesses,raise awareness of how to switch accounts and share informationmore effectively to help small firms to shop around.
The CMA will now consult with banks and other parties aboutthe proposals before publishing final recommendations in April.
Richard Lloyds, executive director of consumer group Which?said the proposals didn't go far enough.
"The regulator now has six months to find more radical waysto promote switching, improve information for consumers andpunish those banks who fail to treat consumers fairly," he said.
Paul Pester, chief executive of challenger bank TSB, saidthe recommendations were a "solid first step" but warned therewas a "long way to go to bring real competition to UK banking".
Pester said last week that British banks make between 7billion and 8 billion pounds a year from personal currentaccounts.
(Editing by Keith Weir and David Goodman)