OFT publishes report on Northern Rock

28/09 10 March 2009

The OFT has today published its report on the impacts of public support for Northern Rock on competition in financial services.

Download Northern Rock: The impact of public support on competition (pdf 243 kb).

The report fulfils a Government commitment given to Parliament during the passage of legislation to nationalise Northern Rock in February 2008. This stated that the OFT would publish an annual report assessing any competitive implications of public support for Northern Rock.

The OFT considered two possible areas of concern arising from public support for Northern Rock. Firstly, that a public perception of Northern Rock as 'safer' than other banks could distort the personal current account, savings and investment product markets, and secondly that Northern Rock might be able to take advantage of a lower cost of capital to offer mortgages at lower prices and so increase its market share.

Taking into account the available information, including the constraints placed on Northern Rock by its 'competitive framework', and in the context of severe financial instability in the year to February 2009, the OFT has concluded that public support for Northern Rock did not, during that period, have a significantly adverse impact on competition.

The OFT will consult on a Financial Services Strategy in March 2009, which will lead to a Financial Services Plan later in the year. The Plan is expected to cover consumer and competition issues across the financial services sector. This would encompass, where appropriate, consideration of competition issues relating to public support to banks, including where relevant, Northern Rock.

NOTES

1. Northern Rock was taken into temporary public ownership in February 2008.

2. Chief Secretary to the Treasury Yvette Cooper made the commitment that the OFT would 'publish an annual report assessing any competitive implications of the public support for Northern Rock' on 21 February during a parliamentary debate on the Banking (Special Provisions) Bill. The official report of the debate can be accessed on the Parliament website.

3. The Competitive Framework was included in Northern Rock's Restructuring Plan which was published in March 2008. The Framework contained specific targets and commitments to ensure that Northern Rock did not gain an unfair advantage as a result of the public support it was receiving.

4. Since the OFT completed its analysis, revisions to Northern Rock's business plan have been announced. There has been a change of strategy and instead of decreasing its mortgage book Northern Rock will now increase mortgage lending. The OFT has not considered this as it falls outside the period of the report.

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