HBOS should stay independent of Lloyds TSB

The part nationalisation of the banking system has come because banks the world over lent irresponsibly to people who couldn’t repay them. Bankers gambled that rising profits would cancel out rising bad debts and that if it all went pear shaped government would step in. They got that latter gamble right, with only the most extreme ideologues prepared to let the system collapse on a point of principle.

Given the coverage, you might be forgiven for thinking the government was simply giving taxpayers’ money away. In fact, it’s looking to invest £9bn in the merged Lloyds TSB HBOS and Royal Bank of Scotland, at twelve per cent a year, which looks like a good investment. It was hard to have any sympathy for the small Lloyds TSB shareholder complaining on the news that his watered down holding would be virtually worthless; shareholders endorsed the banks’ reckless behaviour, taking profits in the good times. Sadly that means taking the hit when it all goes wrong.

But what’s harder to understand is Alistair Darling’s hostility to an independent HBOS. This takeover was agreed before the government had settled on its strategy for the banking crisis and setting aside competition rules always looked expedient.

Allowing capital to consolidate is always a bad thing and immediately puts jobs at risk.

Longer term this new super bank is likely to be powerful enough to restrict competition and distort the market. Once the dust has settled the government – as branch closures begin and an uncompetitive product offerings emerge – will almost certainly need to break Lloyds TSB HBOS up again.

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