New high street banking chains to be created in a bid to improve competition

The government will create three new high-street banking chains by breaking up banks supported by the taxpayer, Alistair Darling is expected to announce tomorrow.

Lloyds Banking Group and RBS will be stripped down, and various parts sold to new owners, in order to introduce more competition in the retail banking sector, Darling will say.

This comes just one year after the government agreed to the merger of Lloyds and HBOS, which created Britain's biggest bank.

The new banks will be standard retail banks concentrating on deposits and mortgages. Ministers hope that this will result in a better deal for the consumer, with an invigorated mortgage market and more competition.

Under the plans, Lloyds, which is 43 per cent owned by the taxpayer, may have to give up TSB Scotland, which it bought in 1995, Cheltneham and Gloucester, and online bank Intelligent Finance.

RBS, which is 70 per cent owned by the taxpayer, is likely to be forced to sell off its insurance businesses, including Churchill, Direct Line, and Green Flag.

In an attempt to encourage competition, owners of existing retail banks, such as HSBC, will not be allowed to bid for the new banks. Likely purchasers are expected to come from the US, Australia or the Middle East.

Denying that it amounted to a quick sale, Darling said: "I am not interested in fire sales, I will only sell when conditions are right."
The Treasury said last night that the full list of sales was not yet finalised.

The move comes after the EU last week backed plans to split nationalised Northern Rock into a "good bank" which can be sold off, and a "bad bank".

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