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Is it sensible to split the UK banking sector?

For many years the strength of the UK financial sector has been the very small number of large banking institutions which had very strong balance sheets and access to massive amounts of capital from the money markets. However, the UK government and the Bank of England would now appear to be looking towards a break-up of the likes of Lloyds bank, Royal Bank of Scotland and Northern Rock in order to inject more competition into the sector. But is this the right move?

Those who think that the UK banking sector will literally change overnight will be in for a short sharp shock because many UK financial institutions have taken hundreds of years to build the reputation they have today. Brand names come and go in many areas of the UK economy but brand names are worth their weight in gold in the UK financial sector where confidence, as we saw with the collapse of Northern Rock, is a vital element of any business model. Would you trust a new entry to the UK banking sector which had little in the way of experience?

The truth is that the UK authorities need to be very careful when looking to splice and dice the UK financial sector and parachute new players into the financial industry. Confidence and reputation are worth more in this industry than possibly the rest of the UK economy put together and this is something that should not be overlooked.

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