The UK government has ruled out a broad investigation into whether Royal Bank of Scotland should be broken up and sold off in smaller component parts to foster more competition in the banking sector.
As shares in rival bailed-out bank Lloyds Banking Group hit their highest levels in more than two and a half years, of 67p, amid speculation that a sale of the government stake was imminent, the coalition admitted that the sell-off of the 81%-owned RBS was a more distant prospect.
The parliamentary commission on banking standards called for a wide-ranging review of the structure of RBS, but the government said splitting RBS into smaller parts "would generate significant additional costs". It added that it would "cause uncertainty and disruption for customers, creditors and staff. This would risk undoing much of the good work that RBS has done in strengthening the bank in recent years. As the majority shareholder, the taxpayer would ultimately bear the majority of the costs."
The Archbishop of Canterbury, Justin Welby, a member of the commission, raised the idea of regional banks to bolster competition in lending.
Chancellor George Osborne has already asked investment bank Rothschild to look at splitting off a "bad" bank from RBS in a move that is delaying any plans to start selling off the government stake, but does not go as far as the commission wanted.
While he has ruled out splitting up RBS into "multiple entities", George Osborne has already asked the competition authorities to look at whether it should hive off more branches than the 316 it is selling to meet EU rules. RBS has to sell the branches because of European rules on state aid – which also require Lloyds to sell 631 branches.
The government reiterated Osborne's previous assertion that it would not close down UK Financial Investments (UKFI), which looks after the taxpayer's stakes in the bailed-out banks, as recommended by the commission.
UKFI is currently deciding which banks will be appointed to sell off Lloyds and RBS and also strengthened its management team yesterday by naming a former banker to run its "bad bank".
Christopher Fox has joined from UBS to run UK Asset Resolution, the arm of UKFI which looks after the nationalised mortgage books of Northern Rock and Bradford & Bingley, which are being run down.
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