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Why shouldn’t a nationalised Rock compete with other lenders?

It’s as safe as the Bank of England! What a thing to be able to say to a prospective saver.

Surely Mr Ron Sandler, banking qualifications or not, can get off to a roaring start at the People’s Bank.

In these difficult times, where credit is difficult to obtain at least we can get a decent savings rate and know that the money is safe as, well, the Bank of England.

But oh dear. Is Northern Rock allowed to compete with the other banks for deposits and is that fair or indeed allowed? The EU law on this will surely become clear in the next few days. It tends not to like illegal state subsidies and all that skewing of the single European market, not that there is one or certainly not in retail banking anyway.

But don’t all those EU regulations surely only apply to rusting heavy industries and certainly never, to pluck a random example from our European partners, France’s national champions?

We shall see in the next few days. But what if Sandler decided to compete not just with a nice set of savings rates but for mortgages too?

From what we understand, it was still quite possible to obtain a Northern Rock mortgage including the erstwhile best seller Together this week.

The rate may have been rubbish for months so that few mortgage brokers would look twice but what if given all that Government support NR could get back into the business of serious lending.

Should it be allowed? What would a reasonable market share be? No-one is expecting Mr Sandler to be allowed to take some money from the NHS or borrow from the Ministry of Defence – they seem to need every penny anyway – or indeed from the Bank of England reserves. IFAs may well mutter that he is unlikely to make a killing from selling a suite of Sandler products.

But what if credit markets came back to some semblance of normality allowing some degree of new funding on the mortgage side? Northern Rock, with legislation and the EU permitting, is set to be a very different proposition to lend to – it could be one of the least risky bets on the planet.

While rivals such as HBOS, Abbey and Nationwide might scream blue murder it is difficult to see why a borrower or indeed a broker would worry. The media might. It almost feels as if they are willing the Together mortgage to provoke a new crisis as all these newly qualified doctors, dentists and lawyers fail to meet their payments and end up destitute.

But if the mortgage book remains of good quality then why couldn’t aspects of it be fired back into life so NR can take a reasonable market share?

A bank is made up of its constituent parts and that for the most part is its saving products and its loans. To keep it in shape for eventual return to the private sector with the tax payer suffering as little pain and gaining as much as possible, surely it needs to lend money.

How much should Northern Rock be hemmed in by competition law? Certainly it should not be allowed to take the sort of share HBOS took a few years ago and it would probably be prudent not to aim even for the dizzy heights the bank itself reached in the two years before the crunch. But what are we saying? Outside the top ten or no lending at all.

One thing I certainly do not buy is that for the next few years a state owned bank will necessarily be run badly because that is what happens in the public sector. I am no fan of the command economy but not all private companies are inherently well run nor public ones badly and anyway this is a very special case.

Perhaps this is all an unnecessary discussion. Maybe Northern Rock can be broken up for scrap and that is all Sandler is aiming to do or scale it back to a rump of depositors and then sell it. But assuming that the end goal is to return Northern Rock to private ownership in the next couple of years then I do not see the killer argument about why within some limits it shouldn’t be allowed to compete. It doesn’t seem to hurt borrowers, savers, or indeed their brokers and advisers. The other banks and building societies I assume will still find ways to make money and the taxpayers can then hopefully get all their money back. But I am quite prepared to stand corrected if someone can say why not. Email me on john.lappin@centaur.co.uk

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