I see The Financial Policy Committee has decided that the main UK banks need a bit more capital before they are as safe as the new authorities wish. Predictably, RBS seems to be the one in need of most new capital, and that is the one large bank that is still not making a profit. With a main shareholder, the UK government, rightly unwilling to subscribe more money, and no retained profits to fatten the assets on the balance sheet, RBS remains the most difficult of the banks to reform.
The Regulators and the shareholders of RBS need to look for other solutions. The government is right not to put more capital into RBS. It should not have put so much in as new equity at the beginning. What it needs to do now is what it should have done in 2008 when the crisis first erupted – sell off assets and slim the bank down by disposals. RBS was never a natural integrated successful group. It should sell its American bank, Citizens, sell the parts of its Investment Bank that are profitable and free standing, and create new clearing banks in the UK market out of the assortment of branches, assets and liabilities it currently enjoys. The taxpayer deserves to get some money back from the disposals of the good bits. Taxpayers in the UK also need more competitive properly financed banks on the High Street.
Taxpayers may have to remain as the owners of a bad bank that could remain once the rest is sold on. As we already own a large majority share of the bad bits of the RBS Group, that is no new hazard. The prize would be the creation of more competition in UK domestic banking, and a resolution of the problem that banking in the UK still is not backed by enough capital to allow sensible expansion of overall loan books. The UK recovery has been held back by the inability of the UK clearing banks as a whole to expand their loans to new people wanting to buy homes, set up businesses or expand decent small and medium sized enterprises. The Bank’s monetary experimentation has not had enough impact on the real economy owing to the Regulator’s insistence on more cash and capital to be held in the banking system, and owing to the weakness of some of the banks in the system.
Sorting out RBS would be the single most important contribution the UK government could now make to overall economic recovery. The fact the RBS remains the worst placed of all the UK banks on capital, more than four years after the crash, argues for new measures to tackle the problem of too little capital and too little competition in UK High Street banking.
When I visited Scotland earlier this week I was interested to see RBS can still afford a lot of advertising at Edinburgh airport. The advert I most enjoyed was the one on a walkway which announced “In 2011 RBS delivered Moneysense to 67,000 young people in Scottish schools.” I do hope it was a case of do as I say, not as I do. We would not want young people brought up to believe you go out and borrow and spend on a massive scale, then ask the taxpayers to stand behind the bills whilst you carry on losing money.