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Should there be a commercial bank owned by the government in the longer term?

As the UK government continues to hold significant stakes in the likes of Lloyds TSB and Royal Bank of Scotland there is a growing debate as to whether the UK authorities should operate a majority controlled bank in the UK commercial sector. The ability to potentially lead from the front has attracted the attention of many MPs and regulators although there are a number of issues such as conflicts of interest which would need to be addressed in the short, medium and longer term.

In many ways the UK government and the UK regulators have been caught short because of their limited insider knowledge of the UK banking sector. They appeared unaware of the significant increase in risks over the last few years, as profits were chased, and they were ill-prepared for the eventual credit crunch and economic downturn. While the Bank of England is effectively the centre of the UK banking system there is a growing feeling that the bank is short on commercial experience on the ground floor.

Whether this would make a significant difference in the longer term remains to be seen but the UK government and the UK regulators were left wholly exposed when the downturn finally came and action was required.

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