Former RBS chief warns against business bank plan

SPLITTING up the Royal Bank of Scotland to create a new business bank would be a “strange way” of increasing lending to companies, a former chief executive of the bank has warned.

Business Secretary Vince Cable has suggested the majority state-owned RBS be broken up and turned into a “British business bank”.

In a letter sent to Prime Minister David Cameron and Deputy Prime Minister Nick Clegg, which was leaked, Mr Cable wrote: “My suggestion is that we recognise that RBS will not return to the market in its current shape and use its time as ward of state to carve out of it a British business bank with a clean balance sheet and a mandate to expand lending rapidly to sound business.”

But former RBS chief executive Sir George Mathewson said that such a proposal was “not going to happen”.

He said: “I think it’s a strange way to go about solving a problem, to break up the major provider of finance to small and medium sized business in the United Kingdom.”

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He added that while there were “issues” with business lending, he argued that “there would certainly be more issues with the sort of approach Vince Cable is advocating”.

Sir George said: “Any time that Government has got involved in financing schemes for business they have not worked, they have become bureaucratic, the decision making process is just not fitted for business, and I have a lot cynicism about the way that would work.”

The former bank chief executive said the relationship between banks and small businesses had “deteriorated” over the last four to five years, but he added that it was still banks who provided the majority of lending to small businesses.