Taxpayers in line for big reward, say bank chiefs

Taxpayers will receive a "handsome" reward for bailing out the banks, according to the heads of Lloyds Banking Group and Royal Bank of Scotland. Yet they criticised ongoing talk of the banks being too big to fail as a "red herring".

The outgoing Lloyds chief executive Eric Daniels appeared in front of the Commons Public Accounts Committee alongside Stephen Hester, his counterpart at RBS. The MPs grilled the pair over whether the taxpayer had received value for money for taking an 83 per cent stake in RBS and a 41 per cent stake in Lloyds during the financial crisis to prevent their collapse.

Mr Daniels said the taxpayer "will get a handsome return on that investment". He said that the bank paid for liquidity support at or above the commercial rate "so the taxpayer did very well", adding: "As our share price goes up the taxpayer will also do very well."

The pair was also questioned on whether the banks were too big to fail. Mr Daniels said: "I don't think it's not a bigness issue it's a complexity issue." He added that size of any of the UK banks did not impede competition, adding the UK market was more competitive than other countries, including Australia and Spain.

Mr Hester called the question of size "a complete red herring". He added: "Regardless of size or shape, the banking sector needed substantial reform."

The bankers were faced with questions over whether the size of their bonuses were appropriate after it emerged last week that senior executives at RBS were entitled to millions of pounds worth of shares more than had been revealed as part of the Project Merlin agreement with the Government.

Margaret Hodge asked the bankers if they were sorry for what happened during the crisis. Mr Daniels replied: "Are we remorseful, or is there cause for concern following the banking crisis, I would say absolutely yes."