British Business Bank: Former RBS boss Mathewson wades in

A leaked letter from Vince Cable suggesting RBS be broken up and used to lend to businesses has, predictably, caused uproar.

by Emma Haslett
Last Updated: 06 Nov 2012
When a letter from Vince Cable suggesting RBS should be broken up and part of it turned into a ‘British Business Bank’, designed to lend more to SMEs, was leaked to yesterday, we knew it would be a matter of hours before current and former senior RBS people – and people from Government departments – started trading insults. Step forward, Sir George Mathewson, CEO of RBS between 1992 and 2001, who reckons the idea is ‘totally inappropriate’.

Speaking to the BBC this morning, Mathewson took exception to the idea of the Government getting more involved in the bank. ‘Most government schemes for helping business, schemes in which they are directly involved, haven’t worked in the past. They’ve become bureaucratic, slow to [make decisions],’ he explained. Which is a fair point: consider Project Merlin, the lending agreement made last year between the Government and banks, which has so far had mixed results (to put it politely).

The Treasury seems just as scathing about Cable’s ideas. ‘We have already changed the strategy to radically shrink and de-risk [RBS’] investment bank and focus on the UK commercial bank. So not very different in practice to Vince’s proposal, but we are doing it in a way that doesn’t destroy millions of pounds for taxpayers,’ said a source. As Robert Peston put it: ‘ouch’.

Vince himself has refused to give any more details about his idea, although apparently it was over-ruled before it even got going. So this might be a bit of an anti-climax. Apparently, though, the idea of some kind of business-focused investment bank is still going. So we may well see a state-owned investment bank at some point in the near future.

As for Mathewson, he reckons the answer is for the Government to stop sticking its nose in banks’ business, particularly when it comes to the much-maligned core tier one capital ratio they’ve been tasked with building up. His argument goes that if banks weren’t forced to have such a large buffer against losses on their loans, they’d be able to lend more. ‘It’s just become so expensive that the banks are driven to try and make capital [and] the terms of business become more difficult.’

Which seems like a fair argument. Of course, the Government could always adopt the Boris Johnson approach to negotiations with financial services, and beg. The mayor of London today announced that he has written a letter to Prudential CEO Tidjane Thiam pleading with him not to move the insurance company’s HQ out of London. Apparently, BoJo has become ‘extremely concerned’ that the firm is considering moving to Hong Kong to avoid new legislations – so much so that he had to resort to begging.

Johnson on his knees? There’s a sight MT would like to see. Will it be enough to convince Thiam? That’s another question…

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