EU may force banks to sell off divisions

LLOYDS Banking Group and Royal Bank of Scotland may be forced to dispose of assets in order to meet EU antitrust rules, the European competition commissioner warned yesterday.<br /><br />Speaking at the British Bankers' Association (BBA) annual conference, Neelie Kroes said that the two banks had an unfair competitive advantage as a result of receiving state aid.<br /><br />&ldquo;The need for competitive market structures is stronger than ever. The likelihood of significant divestments by RBS and Lloyds is strong,&rdquo; she said.<br /><br />Lloyds warned earlier this year that it may have to divest itself of units to win EU approval for its bailout, prompting speculation that it could sell its investment management arm Insight, or one of Scottish Widows and Clerical Medical.<br /><br />Kroes said Brussels could force disposals to &ldquo;ensure competition is not allowed to drain away&rdquo;.<br /><br />Earlier, BBA chief executive Angela Knight warned that an overzealous approach to regulation could constrain banks&rsquo; ability to lend, stifling the UK&rsquo;s economic recovery.<br /><br />&ldquo;The danger is that an overlayering of multiple capital measures could result in an undue constraint being placed on the ability of banks to support households and firms through continuing to lend,&rdquo; she said.<br /><br />She pointed out that banks were already holding more capital than they had before the banking crisis and twice as much as is required by the international Basel standards.<br /><br />Knight said regulatory changes would also need to be co-ordinated across borders to ensure that the UK does not find itself at a competitive disadvantage by imposing too strict requirements too soon.<br /><br />And with Financial Services Authority chairman Lord Adair Turner waiting to speak, Knight called for an end to &ldquo;tripartite infighting&rdquo;, a reference to tension between Turner and Bank of England governor Mervyn King over which authority should dominate the regulatory system.