UPDATE 1-UK banks avoid investigation by competition authority

* OFT says branch sales, 7 day switching may up competition

* OFT says will consider issue again by 2015

* OFT notes significant reduction in overdraft charges

By Matt Scuffham

LONDON, May 15 (Reuters) - Britain's biggest banks werespared a full-blown inquiry into the personal current accountmarket after the consumer watchdog said changes already beingimplemented could stimulate competition in the industry.

The Office of Fair Trading decided not to refer the industryto the Competition Commission for the time being, highlightingnew rules being implemented to make it easier for customers toswitch accounts and branch sales by state-backed Lloyds BankingGroup and RBS which will create new banks.

Britain's 'Big 4' lenders - Lloyds, RBS, Barclays,and HSBC - control about three quarters of the currentaccount market, worth about 9 billion pounds ($13.7 billion) peryear, and lawmakers are keen to encourage greater competition.

The OFT said on Wednesday it still had significant concernsabout the market and would consider again whether there weregrounds for a competition inquiry in 2015 at the latest.However, it noted that there had been a significant reduction inoverdraft charges since a previous study in 2008.

To avoid a new inquiry, the OFT wants banks to be morecustomer-focused and for customers to be better informed and tohave a greater choice of banks to choose from. The OFT alsowants it to be easier for new banks to enter the industry.

A committee of British lawmakers, tasked with recommendingmeasures to improve banking standards, is expected to putcompetition at the heart of its proposal when it publishes itsfinal report next month.

In September, new measures will be introduced giving banks astrict seven-day deadline to enable customers to move to a rivalbank should they wish to do so. Customers have traditionallybeen reluctant to move because of the complications involved.

In addition, start-up banks in Britain will not need as muchcapital as their established rivals from next April.

Competition will also be heightened through the creation oftwo new banks as a result of branch sales which state-backed RBSand Lloyds must make as a condition of European regulatorsgranting approval for their taxpayer-funded bailouts in 2008.

Lloyds is preparing a stock market listing of 630 branches,which will be rebranded under the TSB banner, last seen on theBritish high street in the early 1990s.

RBS has similar plans for 312 branches, which will berenamed Williams & Glyn's, a name not seen since the 1980s,prior to a stock market flotation next year.

Many Britons were disillusioned with their banks in theaftermath of the 2008 financial crisis and distrust of theindustry heightened following scandals such as the rigging ofbenchmark interest rates and the mis-selling of loan insurance.

Metro Bank became the first new high street lender for morethan a century when it launched in 2010. Other challengers suchas Virgin Money and retailer Marks & Spencer have alsoemerged.