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Is there enough competition in the UK banking sector?

Alistair Darling this week suggested that the UK banking sector was short on competition and the government is looking to bring in new entrants to the market. This has raised the question as to whether there is really sufficient competition in the UK banking industry and if not, what can the government do about it?

There is no doubt that, while the influence of the likes of Lloyds bank and Royal Bank of Scotland has been reduced, the likes of Barclays bank and HSBC have managed to sidestep UK government intervention and retain control of their own business plans. Whether this has created an imbalance in competition in the sector is open to debate but there is no doubt that the "super bank" which is Lloyds bank and HBOS could potentially flood the market with competitive offers.

However, the financial position of the enlarged Lloyds bank and Royal Bank of Scotland are still very precarious with suggestions that further state funding will be required in due course. Whether this is the case remains to be seen but while the EU continues to run the rule over the state aid offered to the likes of Northern Rock, Lloyds bank and Royal Bank of Scotland it seems unlikely that these operations will look to flood the market with ultra competitive products. Do we really need new entrants to the market?

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