(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own)
By George Hay
LONDON, April 23 (Reuters Breakingviews) - Justin Welby’s
sermon on UK banks is welcome, but flawed. Britain’s new
Archbishop of Canterbury has called for a big UK bank to be
split up. Welby’s financial literacy means his views are, to an
unusual degree, worth listening to. Sadly, the time for penance
for the likes of Royal Bank of Scotland (RBS.L) is probably
Splitting lenders like RBS into good and bad bits, as Welby
advocated in a speech on April 22, is superficially attractive.
RBS’s best businesses like its UK retail arm make strong
returns, but the overall group is still in the red, dragged down
by past misdemeanours and over 80 billion pounds of loss-making
non-core and Irish assets. A separation would free up the good
part to lend, which might help the country out of what the
archbishop not unreasonably termed a "depression".
This kind of bracing, authoritative radicalism is appealing.
But the costs of clefting RBS in twain are great, and the
benefits worryingly nebulous. It would cost taxpayers over 6
billion pounds to buy out the 19 percent of RBS the state
doesn’t own. A suitably harsh Old Testament valuation of the bad
bank would require a lot more capital.
It also seems a weird time to split RBS, which is already
four years into a five-year programme to wind down its 258
billion pounds of toxic assets. And a breakup might not lead to
more loans, to judge by the underwhelming performance of the
UK’s Funding for Lending scheme. The lack of demand in the
economy probably requires a more radical direct stimulus, such
as allowing the Bank of England to buy securitised small
business debt, or creating a dedicated small business bank.
Before his religious calling, Welby toiled as a financial
executive at an oil company. The mix has given him a persuasive
vision of finance. As he suggests, bankers should renew their
links with the communities they serve. Smaller regional banks
could, if tightly supervised, be safer and easier to resolve.
Banks should have more equity.
But such remedies require investors who are less short term
- and more ascetic. Welby might want to address this in his next
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- At least one of Britain’s major banks should be broken up
into smaller regional lenders, the Archbishop of Canterbury said
in a speech on April 22.
- Justin Welby, who also sits on the Parliamentary
Commission on Banking Standards, said one of the big banks
should be recapitalised and split up. He also backed the idea of
transparency via a "good bank, bad bank" system.
- Reuters: Church head, on bank reform panel, calls for a
bank breakup [ID:nL6N0D928W]
- For previous columns by the author, Reuters customers can
click on [HAY/]
(Editing by Edward Hadas and David Evans)
Keywords: BREAKINGVIEWS WELBY/
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