THE Bank of Scotland is Britain's oldest clearing bank, founded by an Englishman in 1695, the year after the Bank of England. In terms of banking muscle it is a small player, but the men on the Mound left no-one in any doubt yesterday that there is no end to their ambitions. The decision to launch a hostile bid for National Westminster, more than twice its size, is at first sight a high-risk strategy. But they have put NatWest on the defensive, forcing it to postpone the meeting called to approve its bid for Legal & General, the insurance company. Yet if it loses NatWest to a rival bidder, the Bank of Scotland itself could be a target for predators. The Robertson affair earlier this year makes it doubly vulnerable if the NatWest bid backfires.Yet the men on the Mound have been arguably the most successful and respected bankers in Britain in the past 20 years. By contrast, NatWest has vegetated

and is at the bottom end of performance tables. We are not ourselves great enthusiasts for further consolidation in the banking industry, but the process seems inevitable. On that basis we would rather it proceeded as a result of well-run banks taking over their weaker brethren, regardless of size. If, additionally, one (or two) of the banks coming out on top is Scottish then that is a bonus - for reasons of national sentiment, but more importantly because it might do something to check the drift to London and the South-east. (It is a rare irony that Lloyds TSB is registered in Edinburgh, too.)

Whatever the outcome of the Bank of Scotland's bid, the move has initiated a period of radical change in Britain's banking industry, as a result of which the number of players of any consequence could be reduced to four or five. The Royal Bank of Scotland, Barclays, Abbey National, and Halifax are among those which will have to decide where they go from here. Those who do not succeed as predators may become prey themselves. It is possible that such thinking was part of the rationale behind the Bank of Scotland's strategy, though matters were brought to a head by NatWest's planned acquisition of Legal & General. The timing was cute with Britain's most eminent bankers gathering in Washington for the annual meeting of the International Monetary Fund. First thoughts from the fraternity of analysts are that the Bank of Scotland's gamble might pay off, perhaps after being sweetened by a higher

offer.

As bankers get down to their multi-billion-pound game of musical chairs, their customers are potentially the greatest victims. The days of the friendly bank manager are long since gone. Customer services are becoming more remote. The man in the street is being antagonised by indifference to his needs. New excuses to charge for services that were previously free are a daily occurrence. Anecdotal evidence suggests that errors in handling customers' accounts are increasing. Clearing cheques remains a slow process in this age of technology, and even cash takes time to reach accounts. The more the banking industry is consolidated, the more difficult it is for customers to move their business to a bank that will treat them better.

We doubt if there is case for the Competition Commission to investigate the Bank of Scotland's bid for NatWest, or any other likely development. A Barclays/NatWest merger would be another matter. The further banking consolidation proceeds, the more important it becomes that customer dissatisfaction is addressed. It is all the more important that the Cruickshank inquiry into competition in banking makes progress and comes up with remedies to protect customers. And if choice is to be reduced by acquisitions and mergers, it is vital that the diminished band of mutually-owned building societies survives to ensure competition in the provision of mortgages at least remains intense.