Shropshire Star Business Editor Amy Bould looks at the shake-up of the banking industry and what it will mean.

The Government today insisted the major shake-up of the UK banking industry was good news for consumers, offering more competition on the high street and a better deal for taxpayers.

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Certainly, the creation of three new banks will see more mortgage packages available and better rates for savers. It also breaks up the monopoly of the banking giants which include Barclays, Abbey-owner Santander and HSBC.

Under the terms of the deal to appease EU competition rules, the Government will pump another £30 billion of public money into the banks in exchange for the sell-off of the RBS and Lloyds assets.

Northern Rock will be split into a “good” and “bad” business, with the “good” part being sold off to create one of the new banks.

RBS, which yesterday announced 3,700 job losses across its UK branch network, will sell 318 branches across the country.

Lloyds will dispose of more than 600 branches over the next four years, including its Cheltenham & Gloucester arm, and is set to unveil a £21 billion fundraising plans – including a reported £13.5 billion rights issue – to avoid a taxpayer-backed insurance scheme for toxic debts.

Both RBS and Lloyds have agreed to increase lending to businesses and property owners by a total of £39bn. They have also agreed not to pay any bonuses to staff earning more than £39,000 for their performance in 2009.

For consumers, it will be business as normal in the short-term with banks continuing to be cautious amid a recession. But with the creation of more competition in the long-term, it’s likely the new faces will seek to improve on services as they try to win customers.

But the biggest threat to consumers, whether they are looking for a mortgage, a better deal on savings or just fewer charges on current accounts, could be the grip the European Union has on the banking system.

Competition rules mean Lloyds has already been told to reduce its share of the current account market from 30 to 25 per cent. Northern Rock has been told it cannot appear in the top three of the mortgage best-buy tables until the end of next year.

This means the banks are in the position of scaling back lending or offering unattractive deals in a bid to reduce their customer base.

But for Prime Minister Gordon Brown, who has always insisted that returning the troubled institutions to full private ownership was a priority, the new banks of Williams and Glyn, the revival of TSB and the resuscitation of Northern Rock make political sense.

By Business Editor Amy Bould