Is RBS about to go the same way as Northern Rock?

A government body on banking ethics has recommended breaking RBS into 'good' and 'bad' banks, a la Northern Rock. George Osborne, though, isn't convinced.

by Emma Haslett
Last Updated: 20 Jun 2013

Another episode in the long, convoluted, ‘will they-won’t they’ tale of the privatisation-slash-breakup-slash-selloff of RBS. A draft report by the Parliamentary Commission on Banking Standards – the government body responsible for cleaning up the nation’s banks – has suggested that in the name of selling off the taxpayer-owned bank as soon as possible, it should be separated into ‘good’ and ‘bad’ banks.

The idea isn’t a new one – it was done with Northern Rock, which now has a ‘good’ high street chain, rebranded in 2011 when it was bought by Virgin Money, and a ‘bad’ bank, the state-controlled Northern Rock Asset Management, which contains its toxic assets.

The chancellor, though, has been doing everything in his power to avoid a similar fate for RBS because he reckons it would cost ‘up to’ £10bn and take about 18 months to separate the two. His plan has always been to turn the bank into a profit-making business again and sell it off, thus paying back the £20bn the government spent to bail it out in the first place.

The strange thing about this report is that it doesn’t explicitly recommend the good/bad bank option – it merely suggests that some of its members are ‘enthusiastic’ about the plan. Those members include former Tory chancellor Lord Lawson, who reckons it would speed up the bank’s recovery; and Justin Welby, the Archbishop of Canterbury, who apparently likes the idea of splitting RBS into a series of regional banks. And Welby has more business sense than your average archbishop: he is, after all, a former treasurer of oil exploration group Enterprise Oil.

The MPs and lords on the commission have until Monday to digest the draft version of the report before coming up with their final recommendations. The problem for Osborne is that he was the one to set up the commission in the first place – so if it does recommend a breakup of the bank, and he does reject it, the government ends up looking silly.

The final report is likely to be published in the next couple of weeks, so we’ll find out then what the commission’s final thoughts on the matter are. What is definite is that the pressure on Osborne to do something about RBS has just been stepped up. So expect a more solid plan on what his intentions are by the end of the summer.

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