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* Lack of competition for personal, small businesses-watchdog
* Probe marks latest step to break dominance of UK's "big 4"banks
* Investigation could take until summer 2016
* Lloyds shares down 1.2 pct, Barclays, RBS, HSBC dip (Adds comments from politicians, business group, bank CEO andshare prices)
By Steve Slater
LONDON, Nov 6 (Reuters) - Britain's big banks could bebroken up after the country's competition watchdog launched afull-blown investigation into services for small businesscustomers and personal accounts because of a lack ofcompetition.
It marks the latest step by authorities to break thedominance of the country's big four lenders and is likely tokeep the industry in the political spotlight ahead of nextyear's election and beyond.
The Competition and Markets Authority (CMA) said on Thursdaybanks had not done enough to meet the needs of retail customersor small and medium-sized businesses, such as making it easierto switch banks or providing clear information on fees.
The investigation was welcomed by consumer and businessgroups and some of the smaller banks.
"This investigation represents a unique opportunity whichmust be seized, in order to deliver real change in the bankingsector," said John Longworth, director general of the BritishChambers of Commerce.
"For many years Britain's dysfunctional banking sector hasstruggled to meet the needs of SMEs, impeding the growthprospects of some of our most promising young companies."
The investigation, which may take until May 2016 tocomplete, had been expected after the CMA said in July a fullprobe was on the cards.
Since the 2007/09 financial crisis, UK politicians andregulators have tried to improve the safety and conduct ofbanks. The CMA's investigation marks the first major move toimprove competition.
Banks are holding far more capital than before the crisis,have to separate their domestic retail arms and have had toimprove standards and conduct. But consumer and business groupssaid that has not addressed the market dominance of big firms.
Indeed, Lloyds Banking Group's takeover of HBOS andthe collapse of several former building societies in thefinancial crisis cut the number of lenders, before several new'challengers' began to emerge in recent years.
The CMA, which became Britain's new competition watchdog inApril, has the power to order a break up of banks considered toodominant, as well as so-called behavioural remedies, such asimproving information given to customers.
"STRANGLEHOLD ON THE MARKET"
The big four lenders - Lloyds, Royal Bank of Scotland, Barclays and HSBC - have about 77percent of Britain's 65 million personal current accounts. Theyalso have 85 percent of the 3.5 million business currentaccounts and provide nine out of every 10 business loans, theCMA said.
UK authorities have been trying to increase competition inbusiness banking for 15 years, but have failed to do so.
Ed Balls, shadow finance minister for the opposition LabourParty, wants to impose market share caps on banks and welcomedthe investigation. Business Secretary Vince Cable said themarket was over-concentrated and needed more competition.
A new switching service has made it easier to change banksand there has been an increase in people changing accounts. Butstill less than 3 percent of customers a year swap banks.
The CMA said there had been "very little movement over timein the market shares of the four largest banks", and it wouldreview undertakings made by lenders in 2002 that were meant toopen up competition in the small business space.
It was also concerned about barriers to entry and expansionfor smaller banks and limited transparency making it difficultfor customers to compare prices, especially for overdrafts.
Current or personal accounts brought in about 8.1 billionpounds of revenue last year for the banks - or about 125 poundsper customer. Revenue from small business accounts was well over2 billion pounds, the watchdog said.
Analysts have said outcomes could include forcing banks tosell branches in areas where they are particularly strong. Thatcould include business banking in Scotland, where RBS has 39percent of the market and Lloyds 30 percent.
Paul Pester, chief executive of TSB Bank, which wasspun out from Lloyds last year and is still 50 percent owned byit, said the big four banks have had "a stranglehold on themarket for far too long" and more transparency was needed.
"Consumers have been crying out for a root and branchinvestigation like this for years and we have previously saidthe CMA would be uniquely placed to carry out this completereview of the market," Pester said.
The CMA will appoint a Market Reference Group - typicallyabout five people - to investigate issues and decide what actionto take.
Shares in Lloyds, RBS and Barclays were down about 1.2percent by 0840 GMT and HSBC dipped 0.6 percent, broadly in linewith a weaker European bank index. (Additional reporting by William James; Editing by Keith Weirand Clara Ferreira Marques)
