Q and A: What the big split of Lloyds means for its customers

Published on Sunday 1 November 2009 21:13

WHAT will the high street look like in four years' time?

The likelihood is that high streets up and down Britain will be transformed over the coming years.

The Chancellor says he expects at least three new high street banks to emerge, and already we know that Tesco and Virgin are interesting in entering the market.

In some cases old names may disappear from some areas, such as RBS in England and some long-lost names, such as Williams & Glyn, might reappear.

Even if the government changes, it seems likely that the Conservatives will pursue a similar policy, although they may refer the issue to the Competitions Commissioner.

What would happen to my account if I held one at one of these banks?

Accounts are expected to follow the branch that they are attached to.

For example, an account at a former NatWest RBS branch would become part of the new NatWest bank, in theory. Likewise mortgages attached to Cheltenham & Gloucester section of Lloyds would leave Lloyds.

There are some concerns that banks may try to make sure that accounts and good loans are consolidated in the parent banks, leaving the sold assets with little worthwhile business, but the European Union commission appears to be acting to stop that.

Is this good news for customers?

In theory it should be very good news for customers, with far more competition injected into the market.

One of the concerns last year with the forced marriage of Lloyds and Halifax Bank of Scotland was that competition was being taken out of the market, evidenced by the fact that competition laws had to be suspended to allow the merger to take place.

Many experts at the time warned that the takeover would leave the new Lloyds Banking Group in a dominant position and be bad news for customers on financial packages.

This problem should be dealt with by splitting up the big banks and leaving customers less exposed to the dubious practices that led to the banking crisis – by making sure the new "boring banks", as the Chancellor dubbed them, focus on savings and mortgages.

Why is this being done?

The UK government would like people to believe that this sell-off is the natural progression of its policy started last year to save the banks.

However, it is a reversal of consolidation it insisted upon last year with Lloyds and HBOS.

The real reason for this is that the European Union Commission has insisted that large state-owned banks have to be split up and competition needs to be restored to the market.

Does this benefit the taxpayer?

It could be very good news for the taxpayer if the sell-off eventually helps the government make a profit on the 37 billion it laid down to bail out the banks.

At the very least it should be able to recoup a substantial part of the bail-out money and reduce its exposure to toxic assets.

There is some criticism that the government may keep hold of bad debt, such as the unviable part of Northern Rock, but the Chancellor says he believes that this can still be reduced over time.