What a mess. About the only thing that can be said in favour of the smorgasbord of announcements this morning on Royal Bank of Scotland and Lloyds Banking Group is that at least Brussels has managed to force some change on the British banking market. Neelie Kroes, Europe’s Competition Commissioner, has achieved more in correcting the great customer rip off that is British banking in seemingly five minutes than any number of Government sponsored domestic competition inquiries have managed in the last decade.

Her diktats might also be justified as a kind of after the event method of reimposing the rules of moral hazard. Any bank that in future avails itself of state aid will know that the punishment will be brutal. At RBS, more than a decade of empire building by Sir Fred Goodwin and his predecessor, Sir George Mathewson, is being dismantled.

Yet that’s where the praise stops. Taxpayers cannot be anything other than appalled by the amount additional public funds going into the banks – an astonishing £54bn. This at a time when public spending is about to be slashed to bits. No matter that the great bulk of this is not new. We’ve known that it was committed since last March.

But the sheer scale of the extra money is just the half of it. The remedies agreed between Brussels and the Government also seem arbitrary and quite unlikely to achieve the aim of greater competition. The Government spin is that some 15 per cent of the UK banking market will change hands as a result of these disposals. So what.  Some 5 per cent already lies in the hands of an independent operator, Northern Rock. And as any economist will tell you, it is the structure of the market, not its ownership, that makes the difference in banking competition. Not until the  payments system is taken away from the big banking groups and instead becomes a a public infrastructure company which banks use as a “plug in and play” mechanism on equal terms will you see any significant improvement in competition. Unfortunately no mainstream political party dares to be that radical.

As for forcing RBS to divest its insurance interests, how does that help competition? In its favour, it could be said that requiring such an asset sale might enable RBS to become free of taxpayer support more quickly, but then there are lots of ways of skinning a cat. Prescribing the route to repayment of state aid doesn’t look like the right approach at all. What’s wrong with just setting a date?

Some of the behavioural remedies just look silly. For instance, it is hard to see why requiring RBS to stay at or below the number five slot in the global “all debt” league tables of players should do anything for competition in banking. It is also unnecessary. RBS has rarely been above the number five position anyway, and in circumstances where it is engaged on a violent programme of deleveraging, is quite unlikely to be so in the next three years.

Yes indeed. It is easy to pick holes. Let’s not waste a good crisis, policymakers are oft heard to remark these days, by which they mean that the banking crisis provides a god given opportunity to undertake long over due reform. The Government would like you to believe that today’s announcements amount to just such a reform agenda. In fact it is little more than a re-arrangement of the deck chairs. It won’t change anything fundamentally. The banks have had their balance sheets loaded up with more capital from taxpayers, but tangible benefits are hard to see.

Most of the brands that are to be sold were once independent anyway, and there wasn’t notably more competition when they were. In all cases, there were good reasons why they were absorbed into larger banks. Put simply, they were struggling to compete.  The only people likely to gain from this ill conceived break-up are the investment bankers and lawyers charged with undertaking it. The fees will once again be off the scale.

By Jeremy Warner at the Telegraph