How many banks does the government want?

14 February 2009

Richard Northedge wonders how the Treasury will run competing banks, and whether it can ever sell them

So Business Secretary Lord Mandelson is planning to turn the Post Office into a ‘people’s bank’ — to add to the taxpayers’ portfolio that includes most of Royal Bank of Scotland, the biggest stake in Lloyds Banking Group, the rejuvenated Northern Rock, the rump of Bradford & Bingley, and dear old National Savings & Investments. Of the eight retail banks in the FTSE-100 when the credit crunch first squeezed, the government now effectively controls five; of the rest, Alliance & Leicester was swallowed by Santander, and only HSBC and Barclays remain independent.

When Lloyds TSB unveiled its merger with HBOS last September the Office of Fair Trading announced it would investigate to see whether the deal should be referred to the Competition Commission. However, ministers immediately made clear that the rescue had their blessing and would be fast-tracked under the Enterprise Act to avoid scrutiny. Shortly after that, the Treasury revealed the refinancing that gave it shares in both banks and made it the majority owner of RBS.

The OFT has said nothing about this additional concentration of banking ownership — not even when the Chancellor raised the target for National Savings’s contribution to public finances for the current fiscal year from £4 billion to £11 billion, or when he did a U-turn on Northern Rock and switched it from run-down mode back to robust lending. Don’t expect Mandelson’s expansion of the Post Office to be mauled by the competition regulators either: it may seem ridiculous if all these state banks compete against each other for savings or loans, yet curbing the rivalry would be a gross abuse of monopoly power.

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