MINISTERS were yesterday urged to consider using Northern Rock as the base for a new "challenger bank" to spark a competition revolution in high street banking.
The Government-appointed Independent Commission on Banking (ICB) said the coalition should not rule out combining the Newcastle-based institution with hundreds of branches that Lloyds Banking Group (LBG) is required to sell to meet competition rules.
The news comes after UK Financial Investments (UKFI) – the agency holding taxpayers’ stakes in banks – told MPs that remutualisation was a “realistic” possibility for the Rock.
Officials also said Northern Rock could be sold to a new entrant to the banking market or merged with another smaller financial institution, but appeared to rule out a sale to one of the high street banking giants on competition grounds. In an interim report on the banking sector, the ICB said various ideas had been mooted for using the Government assets of Northern Rock to boost competition.
“In general, these assets are too small to make a very substantial difference in the national market on their own. However, the Government should have regard to competition considerations in its management and disposal of these assets,” it said.
“In particular, the Commission would not want to preclude the possibility of Northern Rock plc being used to strengthen competition at a national level, for example by being combined with the LBG divestiture in order to strengthen a new challenger bank.”
North East Labour peer Jeremy Beecham said the key issue was whether Northern Rock would be in the “driving seat” and stressed that he would prefer remutualisation. “If it took over, as it were, a number of branches so it was strengthened that would be one thing,” he said. “However, if it was tacked onto another entity, that would be quite different and not acceptable.”
Business Secretary Vince Cable said the report referred to the Rock’s “potential contribution” in terms of increasing competition in the banking retail sector.
“We know that it is going to have to progress to the private sector in due course. But you are balancing value for money for the taxpayer against other consideration, including competition.
“So, I am not second-guessing what UKFI, the Treasury and ourselves do about that when the time comes,” he said.
The ICB called for retail business to be ring-fenced from so-called “casino” banking to protect savers and borrowers in the event of a future crisis.
Its interim report, which will be followed by final recommendations in September, proposed a raft of reforms to increase stability and promote competition but stopped short of more drastic measures such as a full-blown separation of retail and investment banking and a reversal of the HBOS takeover by Lloyds.
