As one of the few opponents of Mr Brown’s purchase of most of the shares in RBS I would like to look five years on at the way RBS has progressed since the crisis.
I advocated the UK authorities giving limited support through loans and guarantees to the UK clearing bank parts of RBS that needed support to prevent a wider collapse. I had in mind the kind of controlled administration or living will approach which the authorities now say they will adopt if there is a future similar crisis. I thought it was quite wrong to put so much taxpayers money at risk, wrong for taxpayers to finance a bank which was undertaking large amounts of investment banking business and paying huge salaries and bonuses to its staff. I wanted RBS to be forced to sell off its insurance and overseas banking arms, and slim or sell its investment bank, as part of its response to the crisis.
Instead Labour took over the conglomerate, appointed a new Chief Executive, and told him to run it as an integrated group. Taxpayers enjoyed quarter after quarter of heavy losses. The Group was reduced in size drastically, as they closed down business activities and wrote off large quantities of loans that had gone wrong. No wonder the UK economy did not make much progress 2010-12, as its largest bank was cutting its balance sheet by more than £600 billion.
Now the management seems to agree with much of the approach I have advocated, splitting up what was never a natural integrated business. They are in the process of selling Citizens, the US bank. They have sold the insurance interests. They have slimmed down the Investment bank and wish to concentrate on the main UK clearing bank business. The last quarter saw some profit at last for the ill served taxpayer shareholders. There is talk of a dividend later this year.
The Bank of England should never have left the wholesale markets so short of cash as they did during the crisis. It exposed weaknesses in this large bank too drastically, and increased the likelihood of major losses. Once the bank was brought down by the lack of funds in the market, the government should not have leapt in to buy the shares. It has been a long battle to get more to understand that in such a crisis the government and Bank should act as a lender of last resort and a guarantor of the crucial parts of the financial system, but should not take on a whole rambling conglomerate with a failed business model and put taxpayers money into shares.