Tuesday, 23 November 2010

The Independent Commission on Banking requires a time machine

Claire Spottiswoode, a member of the UK government-initiated Independent Commission on Banking has suggested that a recommendation of the Commission may be "reversing what happened on that day a few months back when Lloyds took over another bank,” referring to HBOS. The comments were made at a meeting in Leeds held by the Commission to seek public input into their investigation.  The Commission is due to publish its non-binding recommendations in September 2011. Undoubtedly the Government will need some time to consider the Commission's recommendations. By which point, it is highly likely that the Lloyds TSB and HBOS integration will have completed, resulting in one set of IT, one common back office and a rationalised management structure. Without inventing a time machine (and don't forget that DeLorean was also UK Government funded) reversing the integration at that stage would not only be prohibitively expensive, but quite possibly impossible. Given that the bank is 41% owned by the tax-payers, it is highly questionable whether this would be a good use of money, as ultimately the tax-payers and the consumers would be paying for it.

It is probable that the suggestion was not intended to be taken literally. Lloyds Banking Group has already been instructed by the EU, as a consequence of taking state funding following the banking crisis, to dispose of around 600 branches. These will be made up of the Lloyds TSB branches in Scotland, Cheltenham & Gloucester branches and then additional existing branches to make up the remaining market share that has to be disposed of.

Ms Spottiswoode's assertion is based on the presumption that there too much power lies with a small number of large institutions. Should there be a question of the Commission recommending a more significant disposal of Lloyds Banking Group branches, then any interested potential purchaser of the 600 branches would most likely want to factor this into the timing of their making an offer. Ironically rather than increasing competition in the UK retail banking market this could slow it down.

The Independent Commission on Banking has a very challenging task - inventing a time machine might just be easier.

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