The chancellor, Alistair Darling has announced the nation’s new investments in the banks bailed out out in the financial crisis of the last few months, will be managed on a commercial basis by a new arm’s-length company, ‘UK Financial Investments Limited’ (UKFI), which is wholly owned by the Government. Its objectives will be “to protect and create value for the taxpayer as shareholder with due regard to financial stability and acting in a way that promotes competition.”

UKFI will hold the nation’s shares in RBS and, upon successful merger, HBOS and Lloyds TSB, will also manage its investments in Northern Rock plc and part of Bradford & Bingley.

It is unclear how UKFI will resolve the issue of banking bonues, nor quite how the arrangment will work with regards European competition law. A press release from the Treasury says that it “will work to ensure management incentives for banks in which it has shareholdings are based on maximising long-term value and restricting the potential for rewarding failure. It will also oversee the conditions of the recapitalisation fund, including maintaining, over the next three years, the availability and active marketing of competitively-priced lending to home owners and small businesses at 2007 levels. “

Membership of the UKFI Board will comprise a private sector Chair, three non-executive private sector members, a Chief Executive and two senior Government officials from HM Treasury and the Shareholder Executive. Sir Philip Hampton has agreed to become the UKFI’s first Chair and John Kingman will become Chief Executive.

The government says that it will continue work to ensure that all lenders do everything they can to support homeowners and small business during this period of financial market turbulence.