THE governor of the Bank of England Sir Mervyn King has raised the prospect of splitting the Royal Bank of Scotland to end the “nonsense” of its current part-nationalised status.
In a direct challenge to the Treasury and Chancellor George Osborne, Sir Mervyn said there was a “good bank, bad bank” within the bailed-out RBS, saying arguments for restructuring it were now “powerful”.
His call won backing from some MPs last night who said it was time to cut the taxpayers’ losses on the bank, and free it up to boost lending to the moribund British economy.
The intervention puts fresh pressure on Mr Osborne to reconsider his opposition to the move which, the Chancellor has claimed, could cost a further £10bn in order to buy out minority shareholders.
Sir Mervyn’s comments were seen by some city analysts as a parting shot as he prepares to hand over the reigns at the central bank to his successor Paul Carney later this year.
In his strongest comments yet on RBS, he told the Banking Standards Commission: “The whole idea of a bank being 82 per cent owned by the taxpayer, run at arms’ length from the government, is a nonsense. It cannot make any sense.”
He added: “I think it would be much better to accept that it should have been a temporary period of ownership only, to restructure the bank and put it back. The longer this has gone on the more difficult that’s become” to return RBS to the market.
Restructuring the bank would be complicated, but the challenge was “not beyond the wit of man” to split RBS into a “good” and “bad” bank, he went on.
Advocates of the split argue it would mean that the toxic debts that are still dragging the Bank down could be hived off, thereby allowing a smaller but healthier bank to lend more to credit-starved firms.
Sir Mervyn also appeared to confirm that taxpayers will not get back the bail-out cash injected into RBS. He added: “RBS is worth less than we thought and we should accept that and get back to finding a way to create a new RBS that could be a major lender to the UK economy.”
His comments are in contrast to claims by RBS’s chief executive Stephen Hester last week who argued that the bank’s return to the private sector was on track and could be completed within two years.
Sir Mervyn slapped this down, declaring: “There’s no immediate sign of RBS returning to the private sector.”
RBS declined to comment publicly on Sir Mervyn’s intervention yesterday, but executives at the bank insist that it has already managed to reduce its risks massively, taking £200bn of assets off its balance sheet since 2008.
However, the issue of bank lending has risen again after it emerged last week that billions of pounds of lending was sucked out of the economy in the last three months of 2012.
In total, lending fell by £2.7bn between October and December, with RBS among the big High Street banks which retreated from offering mortgages and loans.
Scottish LibDem MP John Thurso, and a member of the Commons Treasury Select Committee last night said he backed Sir Mervyn’s call, and claimed the Treasury was failing to face up to the facts.
He said: “We are now in a very different place to 2008 and rather than saying we have to stick to our guns, we should recognise the losses and create something that works and which can work for the benefit of the wider economy. I believe Vince Cable is sympathetic but there is a deep resistance within the Treasury because they will have to recognise losses that have not yet crystallised.”
He said a ‘good bank’ would no longer be tied by capital rules as RBS faces at the moment and would be able to act like a “normal bank”.
The idea has also been backed by Lord Lawson, the former chancellor. He said last week that the good part “might be readier to lend to SMEs [small and medium enterprises]” – and could then be rapidly reprivatised.
However, Mr Osborne said it could cost £8bn-£10bn to buy out RBS minority shareholders, a process that would be politically and “presentationally” difficult, given the “controversial decisions on welfare” he had been making to cut budget costs.
The Chancellor also claimed that such a restructuring would be complex and could take two to three years to complete.
The governor confirmed yesterday that he had already discussed his views on RBS with the chancellor. He also further criticised the influence and access of top bankers over politicians under the Labour government: “I was surprised at the degree of access people at the top of banks [to politicians]“. If regulators were tough on banks, they would go straight to the PM, he suggested, adding that “the climate has changed since then, but the access hasn’t”.