Mervyn King, the outgoing governor of the Bank of England, has urged the British government to break up the Royal Bank of Scotland, owner of Ulster Bank, as the best way to recover the bulk of the £45 billion used to bail out the state-controlled bank.
In unusually blunt testimony to the Commission on Banking Standards in London, Sir Mervyn said that RBS’s current structure, in which it is 82 per cent government-owned but managed at arm’s length, is “a nonsense” and unworkable.
The bank’s efforts to shrink were proving to be a drag on the broader economy, he said, adding the bank should be separated into a “good” and “bad” bank.
“At present RBS is a portfolio of different activities that doesn’t sit well enough together to make the market want to bid for it,” he said. “We should simply accept the reality today that it is probably worth less than we thought and we should find a way to get an RBS that can be useful to the UK economy.”
Sir Mervyn told the commission that while the part-nationalisation may have made sense in 2008, when RBS was rescued, the recovery process had dragged on too long and more radical actions were now needed.
He thought a split could be accomplished within a year and that a revitalised RBS could provide a boost to lending, particularly to small and medium-sized businesses.
Sir Mervyn has become increasingly outspoken and critical of UK banks in his final months. – Copyright The Financial Times Limited 2013
