Banking Commission will water down RBS split proposal

Proposals to break up RBS have been watered down by the Banking Standards Commission, according to the BBC's Robert Peston.

A number of commission members, while not opposed ideologically to such a break-up of RBS, argued that the commission had not carried out the kind of forensic analysis necessary to underpin such a firm recommendation.


Instead it will urge the Treasury to carry out the kind of forensic analysis of such an RBS reconstruction which the commission did not have the time to do - and report back in a few months.


We've already reported on a Barclays note that evaluates the possibility of a break up as unlikely, and writing in City A.M. economist Andrew Lilico also suggested that this would not happen:

First, the taxpayer would be likely to lose out considerably on the equity injections of 2008 and 2009. Of course, the taxpayer was always going to lose something – bizarre claims at the time that there would be a profit notwithstanding. But breaking the company up could mean that privatisation receipts would be lower, as the smaller entity gained less from economies of scale and scope.

Second, breaking up and selling off the company would reduce the ability of policymakers to use RBS as Sir Mervyn King wanted, namely instructing it to lend to regional and SME enterprises, as an additional macroeconomic tool. Perhaps even worse than this, if RBS were to be broken up and the pieces not sold off, there is a risk that RBS would indeed be used as such a tool, with disastrous implications for capitalism!

Third, and most fundamentally, selling off RBS would create a possible scenario in which a piece of RBS failed not long after it was created, as happened with Bankia in Spain. Could the government survive, politically, if a newly-privatised bank went bust?

(Full article)

Shares in RBS are now down by around eight per cent following the news that boss Stephen Hester will retire by the end of the year and the announcement of 2,000 job cuts.