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Is there a gap in the market for a long-term state-controlled bank?

While you could argue that the likes of Royal Bank of Scotland, Northern Rock and Lloyds Bank are effectively state-controlled at this moment in time, although they will be sold off in due close, an interesting discussion is formulating in the investment arena. With the mainstream UK banks unwilling at this moment in time to increase liquidity, especially for the small business arena, is there a gap in the market for a long-term state-controlled bank?

On the surface this would seem to be a very interesting idea and one which could potentially shake up the UK banking arena but could this cause more problems than it solves?

The main problem with introducing a competitive state-owned banking operation into the mainstream banking arena is the fact that the UK economy is a "free economy". There is very little in the way of state-controlled operations in the financial arena and ultimately market forces dictate profit margins, interest rates and the services available to UK businesses and UK consumers. There would be the potential for an enormous conflict of interest if the UK government looked to introduce a long-term state-owned bank into the sector and there's no doubt that the "big five" would have something to say about this.

So while in principle there may be some strong arguments for more government influence, in the longer term this would wreck the free market philosophy of the UK.

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