RBS could be split into two banks
Division would allow toxic assets to be grouped into a ‘bad bank’
Splitting up part-nationalised Royal Bank of Scotland (RBS) will be put forward as an option by a parliamentary panel examining standards in British banking, political and industry sources said yesterday.
The bank’s division would allow its toxic assets to be grouped into a “bad bank” separate from its profitable business, freeing it to make the increased lending that the economy needs, but has been rejected so far since it could be complicated and expensive for the Government to administer.
The sources said the Parliamentary Commission on Banking Standards is likely to lay out the pros and cons of such a move, but will stop short of making outright recommendations on the bank’s future when it publishes its final report later in June.
Britain set up the cross-party commission last year to look at ethics in banking, after Barclays was fined over the manipulation of global interest rate benchmarks.
Some members of the commission, notably former British Chancellor Nigel Lawson, are known to support hiving off RBS’s toxic assets into a bad bank.
Yet the commission took little public evidence on the issue, making other members reluctant to make a firm recommendation on the matter.
Outgoing Bank of England Governor Mervyn King brought the issue to the fore when he recommended a break-up of RBS in the last of the inquiry’s 73 witness sessions.
RBS has already undergone a massive restructuring since the government pumped in £45.8 billion in 2008 to keep it afloat, leaving taxpayers with an 81 per cent stake.
The separate cross-party Treasury Select Committee, on which five members of the Banking Standards Commission also sit, has recommended the Finance Ministry should examine a possible breakup and produce a cost-benefit analysis. But the Treasury has yet to respond to that request.
Chancellor George Osborne has said he would think twice about breaking up RBS because of the expense and complexity involved. Britain is looking at options for re-privatising both RBS and Lloyds Banking Group plc, in which it holds a 39 per cent stake. Offloading its shares in Lloyds would be more straightforward, given they are trading above the price at which the government considers it would break even.
Shares in RBS are trading well below the Government’s break-even price and Treasury officials are looking at other options, such as a mass share giveaway to the British public.