Business secretary Peter Mandelson made a bold move when he gave the green light for Lloyds TSB to take over struggling HBOS at the end of last year.

While the Government stopped short of actually altering competition rules to let the merger take place, it did rush through some secondary legislation that meant Mandelson rather than the Office of Fair Trading (OFT) had the power to say yea or nay to the deal.

Under normal circumstances a proposed union between the two banks, which could have been seen as creating too much consolidation in the banking sector, would have been scrutinised by the OFT and most likely been the subject of a 12-month Competition ­Commission investigation.

But how wise was this decision, given that Lloyds has now announced that HBOS is on course to post a loss of £10bn for 2008, and what kind of issues does it throw up for lawyers working in the competition sphere?

Certainly by referring the case to the Competition Commission the OFT would have allowed Lloyds the opportunity to discover the true extent of HBOS’s financial woes before they were transferred to its own balance sheet, but that would not necessarily have been desirable.

As a competition partner at a top 10 firm says: “HBOS might have been in Government ownership by now. Lloyds would have had a very big get-out clause and we would have a situation where the Government would have taken all the pain. From a taxpayer’s ­perspective none of the options were great, but this might be better in the short term.”

For competition lawyers, while the Government’s decision to sidestep existing competition rules will not make a massive difference to their lives, a precedent has been set for the financial sector at least.

“This means the focus that the OFT has on the financial services sector is unlikely to change,” says a competition partner at a City firm. “As a competition lawyer I can understand why they did this and I don’t think there’s going to be less scrutiny.”