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UK government performs a U-turn on sale of bank shareholdings

Alistair Darling this week suggested, in direct contrast to earlier comments from the UK government, that existing UK banks would be barred from acquiring either Northern Rock or part of the taxpayer stakes in Royal Bank of Scotland and Lloyds bank. This is a significant U-turn because at the time of the Lloyds bank acquisition of HBOS, Gordon Brown stepped in personally to remove any competition fears and potential investigations into the move. This week's announcement by Alistair Darling is completely at odds with the government's earlier stance.

The reason why the UK government appears to have changed its stance is basically so that more competition can be injected into the mortgage market, savings market and current account market. The government believes that carving up Northern Rock, Lloyds bank and Royal Bank of Scotland between existing businesses would not increase competition. Indeed it has been suggested that both Virgin Money and Tesco may well be interested in acquiring the Northern Rock operation from the government in due course.

In the eyes of the government, new entrants to the UK banking arena would be the perfect solution to reducing the influence of the U.K.'s largest banks over the UK economy, consumers and businesses.

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