Stephen Hester, RBS CEO

Stephen Hester, chief executive of RBS

We reported this morning on high-level discussions in the government about the possibility of buying out the remaining 18 per cent of RBS that taxpayers do not already own.

The argument for doing so runs like this: we are already exposed to the vast majority of the bank’s hugely damaged balance sheet, and the losses only look like getting worse as we find out more about its distressed debt.

Given that, would it not be better to take advantage of our holding and actually use the bank to pump some credit into our stagnating economy?

At the moment, the problem with doing this is that it means making loans the bank does not currently consider commercially viable. That would be a dereliction of duty to the remaining private shareholders, who would have every reason to sue. The answer therefore is simply to buy them out, and actually use the government’s stake to achieve what it is trying to do. Read more

Stephen Hester has warned that ring-fencing banks could create systemic risk in the system, the opposite of its desired effect. The chief executive of Royal Bank of Scotland is currently being grilled by the Treasury select committee in Portcullis House, Westminster.

The question is pertinent because some form of internal ring-fencing is the recommendation of the Independent Commission on Banking.

It was put to Hester by Andrew Tyrie, chairman of the committee, and the bank chief at first prevaricated. Put on the spot, he said his belief was that, on balance, ring-fencing would cause problems. Read more