BSA warns breaking Rock's assets will be 'unfair'
The Building Societies Association has challenged the government's plan to split Northern Rock into two banks, warning it would distort competition in the mortgage market.
In evidence submitted to the European Commission, Adrian Coles, director general of the BSA, said the proposed creation of 'BankCo', a 'good bank' would give the lender a very strong position in the mortgage market as its initial balance sheet would have none or few non-performing loans.
Mr Coles said: "BankCo is likely to be able to lend freely, without having to absorb losses from any non-performing loans, unlike all of its competitors in the UK mortgage market, to varying degrees."
In the submission Mr Coles said BankCo should be required to pay an annual premium to the government to cover part of the cost of the protection it has gained from the establishment of 'AssetCo', a 'bad bank'.
He also said the government guarantee covering retail and wholesale deposits should be removed, as it allowed BankCo to obtain a lower cost of funding than its competitors.
Mr Coles also said BankCo should be required to make a substantial proportion of its new lending in segments of the mortgage market where private sector lenders are not currently lending, such as at high loan-to-value ratios, or specifically to first-time buyers.
Simon Webster, managing director of Kent-based IFA Facts & Figures Financial Planners, said: "Having the government involved in anything to do with the free market is not a good idea but they did not have a choice at the end of the day.
"Both sides will probably end up in a compromise but my only concern would be that one lender does not end up with a competitive advantage."