Labour said it has repeatedly called for an investigation into competition around UK high street banks, following news of the Competition and Markets Authority's inquiry into five of the UK's biggest lenders.
In a statement Labour's Shadow Chancellor Ed Balls MP said that the political party had urged the watchdog to look into the competitiveness of UK lenders months ago.
"[Labour leader] Ed Miliband and I have repeatedly called for an inquiry into bank competition, so it's welcome that the CMA is now set to start this work later this year," said Balls.
"Ministers claim there is no problem to solve, but everyone else recognises that we have a lack of competition in our banking sector.
"As we said earlier this year, in the next parliament we need to see at least two new challenger banks and a market share test to ensure the market stays competitive for the long term."
The five unnamed High Street banks that are being probed provide 77% of current accounts across the UK.
The inquiry will look at how barriers to entry and expansion for newer and smaller banks remain significant and the markets remain concentrated, particularly in Scotland and Northern Ireland.
The CMA found that many customers reported that they saw little difference between the largest banks in terms of the services they offer.
The CMA's initial findings also showed that some banks were making it difficult for customers to customers to make comparisons between lenders because of limited transparency.
It also said current account overdraft charges were found to be very complex.
Meanwhile, the Confederation of British Industry (CBI) said that the inquiry will help put an end to competition concerns in the banking sector.
"A healthy and vibrant banking market is good for businesses and consumers and critical to the long-term success of our economy," said Katja Hall, CBI Deputy Director-General.
"There are already many measures underway to boost competition in banking, including 7-day switching and a simpler registration process for new entrants. The new credit data sharing initiative currently under discussion will also help. So an investigation would take place against a moving backdrop, but it will provide an opportunity to address the question of competition once and for all.
"From a business perspective, choice in financial services is important so the Government and regulators should continue to promote alternative forms of finance like peer-to-peer lending and private placements, as well as focusing on competition in banking."