RBS and the case for a bad bank: the government’s review
This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
The government review into the case for an RBS bad bank.
RBS has announced a new direction today (Friday 1 November) that will enable the bank to focus on its core job of supporting the British economy and lending to British businesses. The new direction is supported wholeheartedly by the management and Board of RBS, the Bank of England, UK Financial Investments and the government.
RBS’s new direction will deliver a bank that is a boost to the British economy, with an ambitious goal to become the best bank in Britain for business customers, and from which – in time – the British taxpayer can start getting its money back.
Alongside RBS’s announcement on its new direction, the government is publishing its review into the case for an RBS bad bank, announced by the Chancellor at Mansion House in June 2013, which has assessed the case for creating a taxpayer-funded external bad bank against the government’s three objectives for its shareholding in RBS:
accelerating its return to the private sector
supporting the British economy
getting best value for the taxpayer
The Review was conducted by the Treasury – using external expert advisers – and sets out the challenges facing RBS today, and how RBS’s new direction tackles each of these challenges, including tackling the legacy of its ‘high-risk’ and poorly-performing assets.
Through RBS’s new direction, a bad bank will be created – but instead of an ‘external’ bad bank that would require taxpayers’ money, an ‘internal’ bad bank funded by RBS will enable management to focus on new lending.
In order to become a bank that is a boost to the British economy, rather than a burden, RBS has announced comprehensive measures including:
accelerating exit from Citizens in the US, as part of a plan to raise capital equivalent to adding two percentage points to its capital ratio by 2015, in order to strengthen its balance sheet and focus on lending in the UK
embracing a new commitment to being the number one small business bank as judged by customers, and measured by a newly-created survey to be run by the Federation of Small Businesses (FSB) and British Chambers of Commerce (BCC)
continuing to shrink its investment banking arm with the results of a review of the Markets division to be published in February 2014
aggressively tackling its cost base to improve the performance of its “core” businesses