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OFT goes soft on the Rock

The Office of Fair Trading is looking into whether competition will be hampered by banks that are propped up by the government.

Its first report on the subject, published in March, the OFT ruled that public ownership of Northern Rock did not unfairly affect competition in the year to February 2009.

This all seems a bit of a waste of time after Prime Minister Gordon Brown instructed the powers that be to turn a blind eye to the competition issue when Lloyds TSB swallowed up HBOS to create a superbank.

The OFT received its brief from the government when the bank was nationalised back in February 2008, although back then nobody expected a 100% state-backed investor guarantee with no ceiling to distort the market anyway.

According to the OFT there was concern the Rock could take advantage of cheaper capital to offer more competitive rates on its mortgages, which is a wee bit odd. Given that the bank’s priority at the time was to pay back the government and shrink its mortgage book, competition was a concern rather than a big issue.

Now the Rock has pledged a £14bn boost to mortgage lending in the next two years unfair competition in the mortgage market is a concern again. But will the OFT bite the hand that feeds it?

The OFT says it will continue to monitor competition concerns across the sector including banks that have since received government support, adding that instead of an annual report on the Rock it will publish a Financial Services Strategy followed by a Financial Services Plan later in the year.

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