current affairs

Analysis: RBS decision reveals split in coalition thinking

When the financial crisis began, one of the first banks to receive a bailout from the government was the Royal Bank of Scotland.

When the financial crisis began, one of the first banks to receive a bailout from the government was the Royal Bank of Scotland. Now, as RBS’ financial results emerged August 3, so did conversations by government ministers about nationalising RBS.

According to a report from The Guardian, the Business Secretary Vince Cable has suggested nationalisation to allow RBS to lend to small businesses. A report from The Financial Times said there had been talks to buy the rest of the 18 percent of shares that are not state owned, as 82 percent of shares are owned by the government.

Stephen Hester, the chief executive of RBS, told journalists that the government did not consult with them on this, but said it wasn’t his job to focus on who owned shares of RBS. “Our shareholders must decide who wants to buy and who wants to sell,” Hester said. “We have to run a good company and that’s what we’re focused on. But the couple of observations, I suppose, that have occurred to me on the subject is, one, one of the arguments around nationalisation was about good bank versus bad bank and the state taking on our toxic assets.”

Hester added that since 2009 the vast majority of assets that were known to have some risk had been removed. “I’m not quite sure why the state would want to directly take control and exposure to the remaining toxic assets and other problems of RBS but obviously, that would be for the state to decide if it did want to do that,” Hester said. “If it should be that the Government wants loans to be made to a riskier category of borrowers, obviously, that’s a political decision that could be made. My view would be that you could come up with an effective scheme that all banks could access if you wanted that kind of lending to be made and the Government to underwrite it, rather than the Government just using RBS as a vehicle to underwrite those kind of loans.”

Cable wrote to Prime Minister David Cameron with the suggestion in March. In addition, the Liberal Democrat peer (and former Treasury spokesman) Lord Oakeshott advocated for the nationalisation of the bank in a piece for The Guardian before the results came out. “If RBS, the worst non-lender by far, won’t do its basic job, we must nationalise it,” Oakeshott wrote. A government official told the Financial Times that the government had run out of options.

However, a spokesperson for the Treasury told Kettle the idea to nationalise RBS was not being considered, saying that the government wants to return RBS to the private sector and get the best value possible for the taxpayer. The spokesperson declined to comment on conversations held with the government and RBS.

Others have also raised questions about the move, including the former Chancellor of the Exchequer Alistair Darling. Darling told the Financial Times that the risks of such a move would outweigh the benefits. “I would question whether the benefits would outweigh the undoubted risks you are taking on,” Darling said. “We might be better off making changes to the credit easing schemes and looking at making sure the money from quantitative easing gets through to the high street.”

Though it may appear that any talks of nationalisation are off the table, it does however reveal one thing—the coalition is split, and if such a move was to occur, while it would be in favour for the Liberal Democrats, the Conservatives would be against it, therefore revealing a split in the thinking of the coalition, and perhaps one of the decision makers on if the coalition will exist beyond the next general election.