Church-backed bid for RBS arm could herald creation of ethical bank on high street

Consortium would create strong addition to Co-op Bank on the high street

The Church of England is backing a bid for hundreds of branches being offloaded by Royal Bank of Scotland, raising the prospect of a new, ethical bank on the high street.

The Church Commissioners, who manage the Church's investments, are helping to fund a consortium led by the former banker and trade minister Lord Davies looking to take control of 315 RBS branches.

With investment decisions by the Church Commissioners taking into account the advice of the Church of England's Ethical Investment Advisory Group, this would suggest consumers will have a new, ethical banking option if the consortium is successful.

That would be a fillip for ethical financial firms following last week's forced bailout of the Co-op Bank.

RBS is selling the branches after being ordered to get rid of them by the European Commission as a consequence of being bailed out by taxpayers. They were due to be sold to Santander, but the £1.65bn deal collapsed last October more than two years after being agreed.

As well as the Church Commissioners, the consortium contains the private-equity firms Corsair – of which Lord Davies is a partner and vice-chairman – and Centerbridge, plus Standard Life, and the City veteran Lord Rothschild's investment trust, RIT Capital.

There are believed to be two other interested groups still in the running for the business: a tie-up between private-equity company AnaCap Financial Partners and US giant Blackstone, as well as a collection of more than 20 asset management firms led by Andrew Higginson, a former finance director of Tesco.

Earlier this week, Virgin Money's chief executive, Jayne-Anne Gadhia, said it was "totally out of the running" for the business.

The Church of England and RBS declined to comment.

The Church of England already holds a small stake in Barclays, and criticised the bank in its annual report last month, saying it had "repeatedly let down society with its conduct".

The Archbishop of Canterbury, Justin Welby, has become a major figure in the struggle to reshape Britain's banking sector due to his position on the Parliamentary Commission on Banking Standards.

He clashed with RBS's chief executive, Stephen Hester, last November in the role, asking: "What is the duty of an enormous bank like yours – approaching 100 per cent of GDP, well into the hundreds of billions of pounds – what is your duty to society, and why didn't you mention it?"

On the side of angels

No pornography, arms or booze are some of the guidelines by which the Church Commissioners' investment decisions are made. Advice is taken from the Church of England's Ethical Investment Advisory Group (EIAG), which was behind the Church's decision last year to sell its stake in News Corporation in the wake of the phone-hacking scandal. The EIAG entered into a year of talks with News Corp, and put forward recommendations, but in the end said the media giant had not "brought about sufficient change".