The government wants it to be known that some good will come of the credit crunch — three new banks that will bring much-needed fresh blood into the market.

Ministers are apparently “determined” to see more competition, following the £1.2 trillion bailout of the sector that saw Northern Rock, Royal Bank of Scotland (RBS) and Lloyds pass into full or partial state ownership.

Northern Rock last week got the go-ahead from the European Commission to split into “good” and “bad” banks, with the “good” part earmarked for sale to a third party — the first of the three new banks.

Lloyds and RBS are also likely to be ordered by the Commission to sell parts of their businesses as the penalty for receiving state aid — creating the other two phoenix banks.

Virgin Money is in pole position to buy Northern Rock, having recently applied for a banking licence. Other contenders in the shiny, happy high street could be Tesco, which has made no secret of its desire to expand its financial services business, and National Australia Bank, which already owns Yorkshire and Clydesdale banks.

Spain’s Banco Santander, which owns Abbey, Alliance & Leicester and part of Bradford & Bingley, could also be in the running because it is still smaller than the big four.

However, if the government thinks these brands will treat customers any better than the bad banks of old, it should think again.

Research by Moneyfacts, the financial data firm, reveals that banks that haven’t received state aid have cut savings rates more and mortgage rates less than taxpayer-owned banks — with Santander’s brands among the worst offenders.

Moneyfacts analysed what has happened to rates since the Bank of England made its emergency 1.5 percentage point cut to 3.5% in November last year. Bank rate has subsequently fallen to a record low of 0.5% — so a reduction of 4 percentage points in total.

Over the same period, Barclays has cut its standard variable rate (SVR) for mortgages by less than any other top 10 institution, with a reduction of just 1.65 percentage points. It is closely followed by Alliance & Leicester with a cut of only 2.2 points.

Abbey itself has dropped its SVR by just 2.7 points, while the state-owned banks have cut by an average 3.18 points.

Barclays and Abbey will no doubt argue that while their SVRs have not come down as much, their rates for new business are better. The data says otherwise: Abbey charges an average 6.44% for a five-year fix, a huge margin over both Bank rate and the cost of funding.

The lender’s latest results tell you all you need to know. Profit before tax was up 30% and margins on mortgages played a big part. “Net interest income was significantly ahead compared with last year reflecting . . . improvements in mortgage margins, both in terms of new business and retention on standard variable rate and other longer-term offers,” its report said.

It’s not just on mortgages where Abbey is making money, though. It opened 817,000 current accounts in the first nine months of the year and is on track to open a million for the year as a whole.

Looking at Abbey’s current account offerings reminds me of Halifax back in the go-go days of 2006 and 2007, when it was aggressively grabbing market share from its bigger rivals. It offers a huge 6% on its standard current account — but only for the first 12 months and only on balances up to £2,500. Above that, the rate is a much more typical 0.1%. After 12 months, you get 1% on up to £2,500 and 0.1% above that.

In other words, Abbey is adopting the well-worn banking model — offering eye-popping interest rates with big catches and then relying on customer inertia when the deal ends.

A better model is that of its online bank, Cahoot, which pays 1.1% on balances up to £250,000. A good rate, rather than a great one, but simple and transparent. The only catch is you can’t have a cheque book. Tellingly, you hear very little from Cahoot these days.

The government should wait a little longer before it crows about competition having returned to high street banking.

FSA’s risky business FINALLY, we have the results of the Financial Services Authority’s review of structured products — schemes that offer a return linked to a stock market index, with your capital back in full or in part at the end of the term. As ever with the FSA, though, there are unanswered questions.

Its report makes a bold statement: “We take the view that structured investment products are unsuitable for customers who do not want to take any risk with their capital or have no capacity for loss.”

In my experience, that’s most of the people who bought them. Firms used words such as “protected”, “guaranteed” and “safe” in their marketing material precisely because they wanted to appeal to cautious savers venturing out of deposit accounts.

Why, then, has the FSA left it up to the firms to conduct a review of their sales and contact those people who may have been mis-sold? Thousands of people who should never have bought the schemes may be forever in the dark as a result.

The FSA insists it doesn’t have a problem with structured products per se, just the selling of them — but the whole problem is the product itself. They promise return without risk and that’s just not possible. If you have bought one of these plans, check your paperwork and if you don’t like the level of risk, complain.

Kathryn Cooper is editor of the Money section

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