Don't privatise RBS – break it up into local banks, urges NEF thinktank

RBS branch sign

Royal Bank of Scotland could be broken up into 130 locally run banks and operated along the principle of the John Lewis Partnership rather than be privatised by the next government, according to a report published on Wednesday.

In an attempt to reopen the debate about the future of the bank as it prepares to publish its 2014 results on Thursday, the New Economics Foundation argues that carving out local banks would bolster GDP and be more beneficial than using the proceeds of any sale of the stake to cut the national debt.

RBS remains 79% owned by the taxpayer following the 2008 bailout, unlike Lloyds Banking Group, where the government has been selling down its stake, which originally stood at 43%. On Monday, Lloyds announced the taxpayer stake had fallen below 24% and was on course to reach 20% in the run-up to the election on 7 May.

George Osborne, the chancellor, reviewed the structure of RBS in 2013 and stepped back from carving out a “bad bank” of troubled assets, instead focusing on a larger non-core operation. He also stepped back from an idea suggested by the thinktank Policy Exchange of distributing the government’s stake in RBS and Lloyds through shares worth £1,650 a person to 48 million taxpayers.

But Tony Greenham, head of finance and business at NEF, has been working on an idea since 2011 that would be an alternative to privatisation. He has published research suggesting that the costs of splitting banks could be avoided by allowing them to continue to use the centralised back-office system of RBS.

“A network of local banks – one for every city and county, and fully accountable to citizens – would not only boost the diversity and resilience of the UK banking system,” said Greenham, “it would spur investment in regions outside London, increase lending to small businesses, and protect jobs and customer service by reversing the damaging trend of branch closures.”

Basing his research on German savings banks, or Sparkassen, Greenham envisages 12 new London banks and 130 new banks in England in total – an average of one bank for every 408,000 people, with the ratio varying in size from 1.47 million people for a bank in Kent to just 37,600 for one in the tiny Rutland unitary authority area.

He claims that if this had been done in 2008, it would have boosted GDP by £7.1bn immediately and by a further £30.5bn over the subsequent three years.

Powered by Guardian.co.ukThis article was written by Jill Treanor, for theguardian.com on Wednesday 25th February 2015 11.18 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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