James Moore: Why this valuable prize should go to a newcomer

If anyone two years ago had described Northern Rock as the "belle of the ball" they would have been laughed off stage. But after all the junk has been carved out of it, with the help of a £27bn dowry from the taxpayer, that is what it will be.

Even with the EU-imposed constraints on new mortgage lending (which will apply to whoever the new owner is) and even if the state guarantee on savings deposits doesn't apply to deposits with a new owner, Northern Rock offers a solid foundation from which to build a new bank.

Government sources say a key aim of the sell-off – which ministers would like to get away in principle before a forthcoming General Election – will be that the new owner is capable of enhancing the competitive landscape of UK banking.

That aim will also apply to the sale of parts of Lloyds Banking Group and Royal Bank of Scotland, which will be required as consequence of the tax payer's bailout. The EU may yet demand much larger disposals than these banks would like or their spin doctors would have us believe – just ask Dutch bank ING, which was told to split itself in two. But what they sell will inevitably be cast-offs, bits that they don't really want, and that are considered "non-core".

Northern Rock, by contrast, is a stand-alone bank with a nationwide footprint (although its main business is focused on the North-east), and has the capacity to expand rapidly as others streamline their operations and continue to sell off bits to raise cash. It is the real prize out of the series of sales that are to come.

The Government wants to see three new viable and competitive banking groups emerge from the detritus, to take on the established players and inject some life into an ossified market. The torpor of this market will remain even after the financial crisis if the Big Four of Barclays, Lloyds, RBS and HSBC are allowed to sit back on their laurels and take it easy, as their bankers snooze until the shares that make up their bonus packages become convertible into cash.

Of the three, Northern Rock stands the best chance of successfully achieving this aim. And as a result, it should arguably go to an entirely new entrant to the market, such as Virgin or Tesco. Banco Santander (another name in the frame) has already consolidated three banks, in the form of Abbey, Alliance & Leicester and Bradford & Bingley. It would hardly achieve the Government's laudable aim were it to get its hands on another. National Australia Bank's case is better, but, given that it already has a platform, it should be given its chance to grow it through what is sold out of RBS or Lloyds.