Sir Mervyn King today called for the Royal Bank of Scotland to be split up and sold off within a year to end the “nonsense” of state ownership.
In a dramatic intervention, the Governor of the Bank of England said the UK risks a prolonged Japanese-style slump without a rapid privatisation of the high street lender.
It would have to be split into a “good bank”, able to resume its role as a robust lender to businesses and families, and a “bad bank” saddled with the worst debts. Achieving it would be complicated but the challenge was “not beyond the wit of man.”
The Governor told MPs and peers on the Banking Standards Commission: “The whole idea of a bank being 82 per cent-owned by the taxpayer, run at arms’ length from the Government, is nonsense.
“It cannot make any sense. I think it would be much better to accept that it should have been a temporary period of ownership only, to restructure the bank and put it back. The longer this has gone on the more difficult it has become to return RBS to the market.”
His strongly worded comments will pile pressure on the Chancellor, George Osborne, to find a way of returning RBS to the private sector more than four years after it had to be rescued by Gordon Brown at the height of the banking crisis in October 2008.
RBS, which also owns NatWest, was then hours away from collapsing and triggering a crisis that could have paralysed Britain’s entire banking system.
Sir Mervyn told the Commission that still heavily loss-making RBS urgently needed to be restructured. He added: “This has dragged on unnecessarily long. I don’t want to blame anyone for this but I think the lesson of history is we should face up to it.
“It’s four and a half years on and there is no immediate sign of RBS going back to the private sector. So I think that means we have not been sufficiently decisive in either recapitalising the banks or restructuring them.”
He warned that this would temporarily damage the already fragile public finances by realising losses on the huge portfolio of debts RBS took on under the leadership of Fred Goodwin. But he insisted this was a price worth paying.
He said: “The arguments for restructuring sooner rather than later are powerful ones. And we shouldn’t worry about the consequential impact on the apparent scale of public debt. We should accept reality. That reality is it’s probably worth less than we thought.”
Current Government strategy is to let RBS bosses repair its shattered balance sheet and attempt to sell the whole bank back to the private sector. But its share price is still well below the level at which the bank was rescued, meaning taxpayers would have to shoulder a multi-billion-pound loss.
Sir Mervyn said prolonged Government ownership of banks, as in Japan, only lengthened downturns. By contrast Scandinavian banks had only been state-owned for a short time during the region’s financial crisis in the early Nineties, allowing it to return quickly to growth.
The comments came days after current RBS boss Stephen Hester unveiled losses of more than £5 billion for last year. Its total losses since the 2008 bailout have now topped £34 billion.