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LONDON, June 29 (Reuters) - Britain's financial regulator has begun a root-and-branch study of how the country's high street banks make money and will set out its initial findings in the first half of next year.
Andrew Bailey, chief executive of the Financial Conduct Authority (FCA), said the study was an ambitious project that applied lessons from the 2007-09 financial crisis when Northern Rock collapsed because of an unsustainable business model.
The study comes at a time the government is trying to boost competition in a sector dominated by the "Big Four", HSBC , Lloyds, Royal Bank of Scotland and Barclays.
Bailey said 16 new banks had been approved over the last five years and 38 were considering seeking authorisation.
"My hope is that we can lay out a body of evidence from which conclusions can start to be drawn," Bailey told a British Bankers' Association (BBA) conference on Thursday.
"But, let me manage expectations. We expect to be working hard for the rest of this year and into the first two quarters of next year to get the evidence laid out."
The study will start off focusing on links between different products and services and their relative profitability in an environment were fewer customers are visiting bank branches, preferring to access accounts over the phone.
"It should enable us to assess better the impact of changes – for instance in technology – on retail banking business models," Bailey said.
BBA Chief Executive Anthony Browne told the conference that retail banking was changing more than ever before, with apps now the most popular way to access accounts.
"There is a consumer-led revolution underway in the way we access and manage our money," Browne said.
Bailey said the FCA will publish its findings over the summer from a review of so-called high-cost credit including overdrafts after lawmakers criticised banks for charging hefty fees for people who get overdrawn.
"We will then be able to decide if we need to intervene further," Bailey said.
The outcome of a third piece of work will be published by the regulator soon - a review of how banks assess customers' understanding of products and services.
There have also been calls for banks to end free banking for those in credit as lawmakers say it means other services, such as overdrafts, are more expensive than they should be and hit the less well off hardest.
"So, as they say, let me be clear. I do not advocate ending free-if-in-credit banking. Why? Because there is no such thing to start with, so it cannot be abolished as such," Bailey said.
He said free-if-in-credit just meant that some customers pay more or less than others depending on what products they use. (Editing by David Clarke)