James Moore: Are local banks really the answer - or are they just a utopian fantasy?

Outlook Results announcements tend to be viewed through the prism of City expectations, and you’ll be able to see the dark clouds settling over Royal Bank of Scotland’s offices if its numbers undershoot them tomorrow.

But even if analysts are down on his bank, its chief executive Ross McEwan should still be able to demonstrate that it is in rather better overall health now than it was at this time last year. And if RBS has outperformed to any degree, expect lots of chatter about when the Government might begin the process of privatisation.

Right on cue the New Economics Foundation today proposes something different: a break-up into a network of 130 local banks which it says could pump billions into the economy. A utopian fantasy? Au contraire, says the NEF, which has produced an exhaustively researched report. The NEF says that the UK’s banking market is still extraordinarily concentrated when compared to the situation in continental Europe or the US. It is also almost entirely made up of public limited companies.

This means the UK effectively has all its eggs in one basket.

The NEF does admit that several “local” banking models on the continent have performed every bit as dismally as some of their publicly owned peers. But that, it argues, is no reason not to try to create something that does work, particularly if it could get credit out to small businesses.

Unfortunately the model it proposes has some flaws. For example, while it envisages professional bankers managing its new banks, the non-executive directors will be made up partly of employees (no bad thing but try getting that past skittish regulators) partly of local “stakeholders” and partly of representatives from local authorities.

Can you imagine a Royal Bank of Rotherham, with a board populated by members of that train-wreck of a council?

Moreover, breaking up banks is easier to do in principle than in practice – look at the time it has taken to carve TSB out of Lloyds. RBS is still grappling with the separation of Williams & Glyn.

That said, privatising RBS will be extremely difficult. One industry source described it as “a generational project” to me, and they’re probably right. That’s why you occasionally hear talk about simply handing taxpayers free shares as a means of getting the thing out of the state’s hands.

So isn’t it at least worth investigating if there is a better way for RBS to serve the people it has let down?