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* Osborne says 'at no point did Treasury interfere'
* Says decision to proceed with Co-op was matter for Lloyds,FSA (Adds quotes from Osborne letter to committee)
By Matt Scuffham
LONDON, April 3 (Reuters) - Britain's finance ministry didnot interfere in the process of state-backed Lloyds BankingGroup's planned sale of hundreds of branches to theCo-operative Bank, finance minister George Osborne has toldlawmakers.
The sale collapsed in April last year and the full scale ofthe Co-op Bank's problems later became apparent when a 1.5billion-pound capital shortfall was exposed and it was forcedinto a restructuring which saw it fall under the control ofbondholders, including U.S. hedge funds.
Parliament's Treasury Select Committee, which examines thework of the Treasury, has been conducting an inquiry intowhether undue political pressure was applied to Lloyds or theregulator to sell the 631 branches to the Co-op.
Lloyds was ordered to sell the branches, code named Verde,by European competition regulators as a condition forretroactively approving its 20.5 billion-pound ($34 billion)government bailout in the financial crisis.
In a letter to the select committee's chairman, AndrewTyrie, Osborne said ministers had made it clear to the FinancialServices Authority that it had sole responsibility for judgingwhether the planned sale should be allowed to proceed and if itpresented a threat to financial stability.
"We were always very clear both that the commercial decisionon the Verde sale was a matter for Lloyds and that thethen-regulator the FSA should decide whether to allow the saleto proceed or not on prudential grounds ... At no point, did theTreasury seek to interfere in those judgments," Osborne said.
Lloyds now plans to sell off the branches, which have beenrebranded TSB, via a stock market flotation later this year.($1=0.6012 British pounds) (Editing by Greg Mahlich)
