Grounds for Government intervention in HBOS/Lloyds

UK Government note (2 pages, PDF) and press notice concerning the Government's proposal to intervene in support of the HBOS/Lloyds TSB merger in order to protect the stability of the UK financial system.

The note is mostly dedicated to recalling the background. The reasons for intervention are captured in three paragraphs:

The failure of a bank, building society or other deposit-taking firm would leave individuals and businesses unable to access savings, raise finance or meet day to day financial obligations. A single bank failure has the potential to spread to other parts of the financial system through its effect on consumer confidence, the inter-bank lending market and through other channels. The failure of a single bank can involve greater and more widespread costs to the economy than that of a similar sized business in a different sector.

In the light of extraordinary stress in the worldwide financial markets at the time of the proposed Lloyds/HBOS merger, and the systemic importance of HBOS plc to the UK banking system, the Secretary of State considered that there was a need to act quickly and interevene [sic] in the proposed merger given the serious threat to the stability of the UK financial system. This enables stability of the UK financial system to be taken into account, along with competition effects, in regulatory decisions relating to the merger.

In making his decision to intervene and to specify the new public interest consideration the Secretary of State took advice from the Tripartite Authorities – HM Treasury, Bank of England and the Financial Services Authority – who stressed the importance that significant weight should be given to the financial stability issues alongside competition questions in the assessment of the proposed Lloyds/HBOS merger. The Secretary of State was also mindful of the need to give clarity to the market on the regulatory framework, and some certainty for the proposed merger.

There is no proposed decision about the merger itself (the OFT report is only due on Friday 24 October 2008), and therefore no analysis of whether financial stability will in fact be endangered by HBOS' continued independence, and if so whether any lessening of competition from the merger will be shown to be necessary to address these risks.

Timing: These documents were published on 7 October 2008 but only reported here on 14 October 2008. The press notice does not link to the document. On the positive side, the usability of has significantly improved in recent months, and its site search engine even worked on this occasion. Franck.

For further information or advice please contact Franck Latrémolière.

Filed under DTI/BERR, Merger control.

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