The Office of Fair Trading is to investigate whether market competition will be unfairly hampered by banks propped up by the government.
The watchdog has published a report today which rules that public ownership for Northern Rock did not unfairly impact on competition in the year to February 2009.
The OFT was obliged to produce a report investigating competition concerns when the bank was nationalised in February 2008.
One concern was that Northern Rock would be able to take advantage of cheaper capital to offer more competitive rates on its mortgages.
Given the lender’s original policy of winding down its mortgage book, the OFT have ruled these concerns are unlikely to have been borne out.
But now that Northern Rock has pledged a £14bn boost to mortgage lending over the next two years, these concerns may be reignited.
The OFT says it will continue to monitor any emerging competition concerns across the financial services sector, including banks that have since received government support.
The report reads: “Given the significant changes in the sector since the commitment to produce a report on Northern Rock was made, the OFT has agreed with the Treasury that this approach is no longer the most suitable.
“Going forward the OFT will, as reported in the Pre-Budget Report 2008, publish a Financial Services Strategy in March 2009 for consultation followed by a Financial Services Plan later in the year.
“It is anticipated that work conducted within the plan will cover both consumer and competition issues across the financial services sector.
“It will include consideration of competition issues relating to public support to banks, including where relevant Northern Rock.”