RETURNING Northern Rock to its building society roots would lend “credibility” to the Government’s desire to reform the embattled banking sector, MPs have claimed.
The cross-party Commons Treasury committee said there were “attractions” to the mutual model in a new report warning that there is insufficient competition in the retail banking market.
The influential committee also urged UK Financial Investments (UKFI) – the agency holding taxpayers’ stakes in banks – to take expert advice on returning the nationalised Newcastle-based lender to its building society roots.
And it has added to the clamour from MPs and campaigners who want the Government to consider the Rock’s longer term future rather than sell it off as quickly as possible.
The report comes a day after the Coventry Building Society was linked with a takeover of the Rock if it was to be remutualised.
MPs from the region have backed the committee’s calls.
The committee says: “We would urge UKFI, notwithstanding the timescales for a return on its investment to the taxpayer, to honour that commitment by giving due consideration to a mutual option when considering the disposal of Northern Rock.
“This should be facilitated by taking expert advice on remutualising Northern Rock, placed at the appropriate time in the public domain.”
The committee also calls on ministers to introduce a “public interest test” based on competition considerations should apply to the sale of Northern Rock.
“A failure to introduce such a test would be tantamount to admission that the Government has no real interest in promoting competition and is concerned solely with revenue maximisation,” said the committee.
Committee chairman Andrew Tyrie, a Tory MP, said: “We could not but conclude from this that competition in the UK retail banking market is not strong enough.”
Mr Tyrie also warned the issue of banks being “too big to fail” appeared to place large institutions at an unfair competitive advantage to smaller, less systemically important ones.
Treasury Minister Mark Hoban has said the Government is prepared to use the sale of stakes in the banks to facilitate competition. UKFI has also said it was a “realistic possibility” that Northern Rock could become a building society, or sold to a new entrant to the banking market or merged with another smaller financial institution.
It will make an assessment before making recommendations to the Chancellor, who has the final decision, although no timescale has been publicly set out for that process.
Last night Catherine McKinnell, MP for Newcastle North, said: “This report from the Treasury select committee provides a welcome boost to the campaign for the remutualisation of Northern Rock. The democratic structures of mutual societies make them accountable to their customers rather than shareholders, helping to prevent the kinds of risky investment which led to the banking crisis.
“Short-term gain and profit should never be made at the expense of ordinary banking customers.”
The Labour MP added: “We need to ensure that the financial sector improves the way in which it operates in this country and I am glad this report recognises that mutuals are one way of achieving this.”
