UKFI, the body charged with overseeing the taxpayers' stakes in Royal Bank of Scotland, Lloyds and Northern Rock reminds us in its annual report of the need for stability that will enable the market to value the banks. In that respect the share prices remain perilously unpredictable. There is a widening gap between the price at which the government bought in and the current value, which is under pressure from the banks' exposure to the eurozone and what UKFI identifies as uncertainty over the regulatory environment under which they will operate. This was an issue raised ahead of the year-end results by Stephen Hester, chief executive at RBS, in an internal memo to staff published in Scotland on Sunday in which he referred to "uncertain externals, esp regulation". The restructuring of the regulatory environment was a commitment of the coalition government and is being overseen by George Osborne, the Chancellor. The Financial Services Authority will be wound up next year and replaced by new organisations with the Bank of England (BoE) taking back a supervisory role. But there is much concern outwith and within the banking sector as to how effective the new regime will be, with some fearing the BoE is getting too much power. The process of selling the Treasury's 41 per cent in Lloyds and 83 per cent in RBS is still expected to begin early next year, but it is dependent on the share prices recovering. That in turn depends on the climate in Europe showing some sign of stability and the banks avoiding a second crisis through the 214 billion of outstanding loans to the region. Banking's quiet man eyeing Llloyds branches with care DAVID Thorburn was giving nothing away yesterday when I asked him about his bank's prospects of adding to its portfolio by bidding for the 632 branches that Lloyds is putting on the market. He's bound by orders from head office in Melbourne to stick to the somewhat non-committal position and says repeatedly that there is much speculation about whether it will or won't mount a firm offer. Well, that's because the bank is not coming out with a firm statement of intent. A little guidance might just fill some of that void. We know that Virgin Money is in. And we know that it doesn't want any more branches than those being offered, whatever the Independent Commission on Banking might say about adding to the stock of assets put up for sale. According to the "speculation", Virgin's only definite rival is the Co-operative Bank with the NBNK vehicle headed by Lord Levene as a third possible buyer. National Australia Bank, which owns Clydesdale and Yorkshire, is said to have made an approach along with a private equity firm and Clive Cowdery's Resolution group of insurance companies. These last two look like rank outsiders. We're expecting Lloyds to reduce the number to two by the end of this month. That's the end of next week, so NAB may have to confirm its interest in the next few days. It is thought to be a favourite of Lloyds' boss Antonio Horta-Osorio, probably because it is a natural fit and may offer a decent price. Thorburn may be getting his feet under the table in his new job as chief executive of the Clydesdale and Yorkshire banks but he will play a key role in putting any NAB-Lloyds arrangements for Lloyds in place. Banking insiders say he oversaw NAB's interest in Royal Bank of Scotland's sale of branches and that he was not impressed with what he found, therefore recommending his bosses withdraw their interest. Despite his reticence, it's thought he is once again centre-stage in NAB's assessment of the Lloyds portfolio. This is markedly different in as much as the branches for sale include almost 200 in its Scottish heartland. Should NAB acquire the Lloyds business it would have a transforming effect on NAB's business in Britain by adding 632 branches to a current tally of 339. It would also help Thorburn to offer what he admits he cannot currently do: offer scale and the cheapest prices. The market has never been sure of NAB's commitment to Britain but is generally supportive of Horta-Osorio's position. For all the talk of introducing new entrants to the banking sector, the most likely buyer will be an established player. Spanish giant Santander bought the RBS branches and NAB has all the necessary scale and track record to acquire the Lloyds business. Newcomers are for the idealists, but they must have the resources to capitalise a bank and to offer competitive rates. The last thing the Treasury needs is to take a risk on a buyer that presents it with another problem further down the line.