British banking would be poorer without a Co-operative challenge

When the Manchester-based Co-operative Bank was announced last July as the buyer of 632 Lloyds branches, tripling the size of its own network, I hailed the news as a step forward for  ‘banking biodiversity’. In February, George Osborne was still praising the deal, codenamed Project Verde, as one that would ‘shake up the established players’. But last month it fell apart — and the superfluous Lloyds outlets, which Brussels insists must be disposed of as a condition of the 2008 Lloyds-HBOS merger, are now likely to be repackaged as a revived Trustee Savings Bank. Meanwhile, the news got worse for the Co-op: after losses last year of £674 -million, it has been downgraded to junk status by the Moody’s ratings agency and has parted company with chief executive Barry Tootell, who was appointed two years ago to drive Verde to completion.

The problem is that the Co-op’s loan book has deteriorated as the circumstances of its borrowers have failed to improve while Verde has been on the negotiating table.