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Royal Bank of Scotland sees more doom and gloom ahead

Despite forlorn hopes of a short term recovery in the banking sector it looks as though we are in for yet more bad news in the short to medium term. Announcing write-downs of over £200 million Royal Bank of Scotland has indicated this will increase in the third quarter of 2008 as the fallout from the credit crunch, economic slowdown and increasing mortgage defaults continues to worsen.

Royal Bank of Scotland is one of those institutions which has chosen to take up the government's offer of emergency funding to the tune of £20 billion which could see the government adopting a stake of 50% in the overall group. This would not only be disastrous for existing shareholders but would place the UK finance sector in a very difficult situation whereby the government could end up with majority holdings in a number of major operations.

The impact which this may or may not have on competition is unknown but it cannot be healthy to have one organisation controlling so much of the UK financial sector. However, there does not appear to be any alternative as the repercussions of leaving the banks to their own devices would have a major impact upon the UK economy as a whole.

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