There are reports today that the government is going to write about £7 billion off its valuation of its 73% shareholding in RBS. This would leave a remaining worth of about £15 billion.
The write-off recognises three things. The first is that the 503p a share price paid for RBS in 2008 will not be recovered. The second is that the 330p price at which a block of shares was sold by Osborne was wildly over-priced. And third, neither value is likely to be seen again for a long time.
All such views do however miss the fundamental point about RBS, which is that it is not just a failed bank but that it is the exemplar of a failed banking system. There is no solution to RBS that involves sale, flotation, giving it away as helicopter money, or anything else. Instead, as I recall writing way back in Ocober 2008, RBS has to be stripped of all its peripheral activities (including investment banking in its entirety) and instead be prepared, under full state control, as the platform on which new regional banks can be built.
These would have three roles. The first is a secure and simple place to bank without pressure to buy extraneous products, all provided at a fair price.
Second, this would be the home of National Savings, including new local bonds, and pension and ISA products based on them.
And third it would be the delivery mechanism for the local activities of a new Natioonal Investment Bank.
And if we do leave the EU this could all be done without problem. And if we don't a local franchise operation on top of a central, uniform, banking platform should solve any competition issues.
And all for a modest outlay to buy out the remaining private sector investors with the chance to reform the whoke of banking as a prize.
Surely someone has to grab the possibility? It could even give Scotland its own bank once again, after all, and something long gone in the rest of the country, which is a trusted bank. Is that too much to hope for?
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Sod the banks, Credit Unions could play this role!
For some yes
But by no means for all
Let’s be realistic
By no means a ready made solution, the government has poured money into the CU sector, which is being used to modernise. Still need to offer a wider range of lending in order to attract broader membership base.
I worked with credit unions in the East Midlands between 2010 – 2013 as a response to Universal Credit and the creation of jam jar accounts to enable tenants to pay their rent.
There are some great people and some great CU’s in the area but as organisations there is a huge variation in capacity to deliver a good service. Added to that, the period between 2010-2012 (harsh austerity brought on by the coalition) meant that CU’s suffered more in terms of non-repayment of loans so their bad debt problems went sky high – even for small loans like £300/£350.
So even though the CU movement was trying to develop and meet need it, it was also constrained by a growth in bad debt which made their management boards more cautious about growing the business. It was very frustrating.
The Government gave the region some funding but this was less than half it offered to the mainstream profit driven payment card market which went down like a shit sandwich with the movement.
CU’s remain under utilised in this country and under developed but for the same reasons RBS might never become a proper state investment bank – because there are too many vested interests.
BTW – CU’s also need the mainstream banking system to make their business work. So the banks can still exert leverage over the sector that way.
Richard – did you ever complete the analysis of how damaging austerity was between 2010-2012 to the economy? I recall you were looking at this.
PSR
I am afraid I did not…
Sorry
Richard
FWIW I wholeheartedly endorse this idea. However I do beleive that it might indeed be too much to hope for because what is an emminently sensible idea will not work within the ideological outlook of the current Government.
@PSR I agree 100% but then that is exactly what the Blair/Brown government would have done, just sat on their hands rather than interfere with the ‘magic of the markets’.
I remember how various solid Brit companies such as Marconi & GEC (I declare an interest having worked for both) were left to rot (much due to some very bad management decisions I know).
Ian
I agree.
These actions would require a lack of self interest and a degree of common sense which is not apparent or expected from the politicians with their hands of the power and their minds on their personal wealth. Good ideas dont come easily to closed minds.
This Tory government will never even consider using RBS for what you are suggesting. Creating a regional banking system would be a direct rival to the big banks, something which those banks will viciously lobby against, and the Tories will prevent at any cost. A bit like the railways. The East Coast line was making a profit, pleasing the customers and even returning money to the Treasury. So, in order to stop socialists from holding the East Coast line up as a prime example of how nationalisation can work, what did the Tories do? They privatised it pretty dam quickly.
I’m afraid this pessimism on changing RBS means simply that we should all be lobbying our local authorities to create local coop/not for profit banks on the German model – and quickly while central government is preoccupied with Brexit!