As I did not get a satisfactory answer yesterday, let me have a go firstly at an answer the PM could have given, and then at a fuller answer to the problem I was highlighting.
Question: “The balance sheet of RBS shows £700 billion less in loans and other assets at end December 2009 compared to a year earlier. Where has the £700 billion gone?”
Possible PM answer ” The Rt Hon gentleman should understand that when we took over RBS it had a very overextended balance sheet. Management is currently working to shrink the size of the balance sheet by selling off trading and other assets, reducing liabilities at the same time. I am very keen that they should not allow this process to impede levels of lending to persons and companies in the UK and will take further action as shareholder to ensure they do not restrict their supply of credit in a damaging way”
I wished to highlight two related questions. The first is the actions and attitudes of the Banking Regulator, at a time when we need an economic recovery. The Regulator has chosen this time to demand higher levels of cash and capital from banks than they were required to hold during the boom. This means that at the weakest point in the cycle they are forced to reduce their lending and other risky activities, as a bank like RBS has no easy way to raise further large sums of capital to sustain its former balance sheet. Why is the Regulator behaving in a way which aggravates the cycle rather than smoothing it? Many now say they believe in the counter cyclical regulation I have been advocating, so why aren’t they putting it into effect?
The second is shareholder value. Taxpayers have been made to buy 84% of RBS at an average price higher than today’s share price. Taxpayers would like to get their money back with profit, and will want to know what impact such a rapid reduction in the overall size of the bank will have on the future value of their shares. There has been no guidance from the government as shareholder’s representative on this important matter.
I think it is wrong that these huge sums of money at risk for taxpayers are neither properly reported nor debated in the House of Commons. As I keep explaining to the government, they have got us into a situation where the state is the best part of a couple of large banks with a medium sized government attached. The sums at risk in our bank ownership far exceed annual public spending. Ministers should take a more serious interest in what is happening in these large state owned and influenced banks, and report it to us. Ministers should also be able to answer questions on the main strategic thrust of what they are doing with them in our name.