By Maximilian Clarke

The sale of Northern Rock to Virgin Money would be a victory for the Independent Commission on Banking which urged greater competition among the nation’s leading banks, a PwC banking expert has said.

The beleaguered banking institution passed into government control following its crash in 2007 as one of the first high- profile victims of the subprime mortgage crisis.

Though the sale of the bank to Virgin Money- which was cleared by regulators earlier this month- will occur at a loss for the UK taxpayer, the sale is nonetheless being welcomed.

“This goes some way in helping to introduce more choice and competition into the retail banking market as it allows a new entrant the opportunity to start building scale into their franchise,” said Commenting on the impact of the sale of Northern Rock to Virgin Money on the banking sector, Steve Davies, retail banking leader at PwC. “It also helps progress the Independent Commission on Banking’s (ICB) agenda to increase direct competition in the banking market.

“However, smaller banks still face a number of difficulties to compete with the bigger and more established players. Most notably, smaller banks do not have the scale and range of products to support the core free current account offer. This re-opens the debate on how sustainable the free banking model will be for the smaller players and new entrants.

“The move towards transparent, fee-based current accounts would make the market more attractive to new entrants and also address concerns about where and how banks can make a reasonable return for the services they provide to their customers. Banks are understandably reluctant to be the first to move on this issue, meaning the change will probably only come about with support from the government and regulators.”

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