Banks carve-up to recoup bail-out

The Chancellor said he wanted to carve up the state-controlled banks in a bid to increase competition and recoup the costs of the Treasury's multibillion-pound bail-out.

The new banks would be created over the next few years as Northern Rock, Royal Bank of Scotland and Lloyds Banking Group are re-privatised.

Northern Rock, which is 100% taxpayer-owned, could be broken up and ready for sale by the end of this year.

Private investment is also being sought to reduce the taxpayer's exposure to RBS and Lloyds, which are both majority-owned by the state.

He indicated that different parts of both banks would be sold separately to newcomers to the sector as part of its "reconstruction".

"What you really want to do is have quite a substantial divestment - perhaps branches or perhaps particular institutions that they own - made available to other people," Mr Darling told BBC1's The Politics Show.

"Because unless we get competition we are going to end up with half a dozen big providers which would be a big reduction in choice and that would not be acceptable."

Mr Darling said he would not countenance "fire sales" of any of the taxpayer's banking assets, although it would soon be in a position to dispose of part of Northern Rock.

Potential buyers are thought to include Tesco and Virgin, as well as foreign buyers, possibly from the US, Australia and the Middle East.