The European Commission approved Northern Rock’s plans to separate its assets between two companies – Northern Rock plc and Northern Rock (Asset Management) plc – earlier today.
The lender proposed the restructure in response to rules from the EC which state that banks that have received public support should not benefit from an unfair market advantage because of the government money they have received.
But Adrian Coles, director-general of the BSA, says the competitive framework which Northern Rock has to comply with due to its receipt of state aid don’t go far enough.
He says: “Given the split, the 100% government guarantee on Northern Rock’s retail deposits should now be removed.
“Until this happens, we strongly believe that Northern Rock should pay a fee to the government for the benefit of this guarantee.”
Coles argues that Northern Rock’s committment to stay out of the top three best-buys for mortgages is positive, but says he would have preferred this limit to be extended to forcing Northen Rock out of the top five best buy deals instead.
He adds: “We note the restriction to the size of the savings book.
“This is welcome as far as it goes.
“Unfortunately, previous targets set by Northern Rock were met well ahead of planned dates suggesting short-term distortion to the market can take place within a long-term commitment.”
Earlier this month the BSA called for Northern Rock to return to being a mutual lender, as the trade body argued this would encourage competition and would trigger Northern Rock to adopt a more prudent business approach.