Neelie Kroes claims RBS grew 'simply too big to operate and supervise'

Published on Thursday 12 November 2009 19:46

THE European Union's top competition official said yesterday that Royal Bank of Scotland grew so big during the banking boom that it was "simply too big to operate and supervise".

Competition Commissioner Neelie Kroes said banks' ballooning balance sheets should have set off investor alarm bells and that she was now trying to "build up solid banks by working with them to face certain realities".

Under pressure from EU regulators, who must approve government bail-outs, Germany's Commerzbank and the Netherlands' ING have shrunk their business and shed commercial banking units. Last week Lloyds Banking Group and RBS said they were preparing to do the same to secure EU backing for bank rescue programmes. RBS is planning to dispose of 318 branches, or 14 per cent of its UK network, within four years.

The move is meant to compensate for the advantage the bank gets from joining a government scheme to guarantee 282 billion in losses on toxic assets.

Kroes said she wasn't "some kind of bank destroyer" but a referee for banking bail-outs, "making sure there is a market in the long term". She said investors and regulators need to check that large banks have strong, long-term business models. "Many practices in the banks were crazy. It is appalling that the banks themselves did not understand the risks, but it should also have been obvious – if we looked harder – that something was wrong," she said in prepared remarks for a speech she gave in Amsterdam.

She said both British banks were clearly overloaded with risk before the crisis, with Lloyds running a loan-to-deposit ratio of 180 per cent and RBS tripling its balance sheets in two years from 2006, "growing to be larger than all" European economies except Germany.

The same concerns have been voiced about major US banks being "too big to fail" but Barack Obama's administration has stayed away from any proposal to break them up.