MPs reignite call for Lloyds and RBS ‘bad bank’

Picture: Phil Wilkinson
Picture: Phil Wilkinson
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AN INFLUENTIAL committee of MPs has pressed again for the Treasury to investigate the possibility of a break-up of Britain’s state-owned banks, Lloyds and Royal Bank of Scotland.

A so-called “bad bank” could be created comprising toxic loans still held by the two banks, according to a report by the Treasury select committee. It calls for a cost-benefit analysis of the plan within six weeks.

It follows the committee recently hearing evidence from witnesses, including Bank of England governor Sir Mervyn King, who said a break-up could boost lending to Britain’s stagnant economy.

The report said: “In light of this evidence … the committee recommends that the [UK] government publish its analysis of the pros and cons of creating a ‘bad bank’ for the banks in which the government has a stake.”

Such an analysis should include scrutiny of the fiscal and competition implications of such a move, the report said.

Chancellor George Osborne opposed the creation of a bad bank in his evidence to the committee, saying he believed it would be “very disruptive” and he was “unsure the gains would outweigh the disruption”.

Opponents of the idea also say any such creation would need the approval of the European Commission in accordance with European rules on state aid.

Both RBS and Lloyds were ordered by Brussels to sell off assets, including hundreds of branches, as part of their state bailouts in the financial crash of 2008.