Osborne set for RBS row with banking commission

Tim Wallace
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GEORGE Osborne is set for a showdown with the Parliamentary Commission on Banking Standards (PCBS) in coming weeks as some its members want RBS to be broken up into a good bank and a bad bank before it is sold off.

Lord Lawson and Archbishop Justin Welby are among those who think the split would increase lending more rapidly than if the bank is kept in its current structure.

That is in line with evidence given by Bank of England governor Sir Mervyn King, who favours the split.

However the chancellor has spoken regularly about the damage he believes the good bank and bad bank solution would cause.

“I think it is very, very disruptive and I am not sure the gains outweigh the disruption,” he told parliament at the Autumn Statement.

RBS declined to comment in advance of the Commission’s final recommendations.

But a source at the bank indicated changing the plan so radically so many years after the current reforms were started.

“You have got to consider the outcomes very carefully before you pump another £10bn of taxpayers’ money into a bank,” said an insider.

“In terms of privatisation, it would take 18 months to two years to figure out the terms of this split, how to capitalise the good and bad bits, before you even start looking at privatisation. Compare that with the current path – in two years the restructuring should be complete and it can be privatised anyway.”

Similarly the bank is understood to believe bad assets are no longer holding back lending, as the Bank of England’s prudential regulation authority approved its capital structure just last month.

It is not thought likely the commission will give a hard recommendation that the bank be split up – it did not mention the idea to RBS’ chief Stephen Hester and chairman Sir Philip Hampton when they gave evidence in parliament – but the idea could still be put forward, causing a row if the chancellor does not follow the advice.

The PCBS is expected to finalise its report in the coming weeks, publishing later this summer. After that the chancellor is set to lay out his plans for the sale of the government’s stakes in Lloyds and RBS.