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OFT concerned that state owned banks may distort the market

The Office of Fair Trading (OFT) has today issued a statement regarding the UK government's, and indirectly taxpayer's, influence on the UK banking sector. This is with regards to significant taxpayer shareholdings in Royal Bank of Scotland and Lloyds bank and exposure to Northern Rock and Bradford & Bingley. The OFT is concerned that political and governmental influences could distort the UK banking sector and cause serious problems in the future.

This further strengthens the UK government's recent decision to look at potentially selling off the various stakes in UK banks and withdrawing totally from direct influence over the sector. The Northern Rock, and its flip-flop strategy of recent months, is a perfect example of how the market has been influenced unduly by one company. Northern Rock initially incentivised customers to move their mortgages elsewhere with bonus payments made available, only to turn about-face over recent weeks and try to attract new mortgage business.

There is a feeling that the UK government is also using exposure to Royal Bank of Scotland and Lloyds bank as a way to direct banking strategies of the future and try to take the sector down a particular route. As we approach the general election there is also concern regarding manipulation of lending liquidity and mortgage approvals.

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