Plans for new banks to be created

Alistair Darling has announced the creation of three new high street banks

Alistair Darling has announced that the state-controlled banks would be broken up for sale in a bid to improve competition and recoup taxpayers' cash from the bail-out of the sector.

The Chancellor said he wanted to see three new high street banks created within the next few years as Northern Rock, Royal Bank of Scotland and Lloyds Banking Group are sold off.

The "viable" part of the completely nationalised Northern Rock could be sold off by the end of this year, he said.

Private investment was also being sought to reduce the taxpayers' 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".

Speaking on BBC1's The Politics Show, Mr Darling said: "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.

"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."

The new-look banking sector would take shape over a matter of three or four years, he said, indicating that the plans could be at the mercy of an incoming Tory administration.

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.