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Rulebook torn up for Lloyds TSB/HBOS merger


You all know the story by now – following the collapse of Lehman Brothers, HBOS (the UK’s biggest mortgage lender) took a hammering on the stock market, with its share value falling to below £1 from around £3.50 (compared to close to £10 this time last year) largely as a result of short selling by hedge funds. In order to save the bank from collapse, which would have undoubtedly massive repercussions for the UK economy, a deal was rushed through to allow Lloyds TSB to take over HBOS.

This is a Big Deal, because it effectively changes the face of the retail banking (i.e. the banks which most of us little people deal with) industry in the UK, creating a bank so enormous that approximately 40% of the UK population will be its customers and it will hold close to 30% of the country’s mortgage market.

But wait a minute – isn’t it a little dangerous to allow one business to hold so much power over the people and economy of our country? Shouldn’t there be legal measures in place to make sure that big banks can’t get too powerful and abuse their position? Well, as it turns out, there are legal measures in place, but they’ve just been conveniently ignored for the sake of saving the banking industry’s skin yet again. According to UK law, it is illegal for any one company have more than a 25% share in the mortgage market.

Quite apart from this,  any deal of this size between two  organisations which are already very large and ridiculously powerful would usually be subject to all sorts of investigations and legal scrutiny in order to protect the interests of the British people. None of this has happened, the merger has been rushed through and the government has agreed to bend the laws on competition to allow the deal to take place.

Once again, the interests of the public and the free market have been swept under the rug in favour of bailing out the banking industry, regardless of any long term consequences. What might these consequences be? It’s difficult to say without a lot of analysis and investigation (of the kind that should have taken place before the deal took place) but one thing is certain – this deal has created a monster, a bank so big that it genuinely cannot be allowed to fail because the result would be disastrous for the entire country.

A bank that big can do whatever it likes, take whatever risks it likes in the pursuit of ever increasing profits, safe in the knowledge that the government will always be prepared to bail it out, no matter what. And that’s exactly the kind of scenario that got us into this mess in the first place.

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