Wanted: a fix to the lending problem that politicians have long obsessed over. Needed: a home for more than 300 branches of an established bank.
If those two requirements were not part of a messy tangle of politics, power and painful fallout from the financial crisis they would seem the perfect match.
But despite the intense complications that would have to be navigated, could it, might it, actually be conceivable that the branches of RBS in England and Wales, and Natwest in Scotland that the (practically) taxpayer-owned bank has to get rid of, some day soon end up in the hands of the public?
There are real and very valid doubts about whether the ‘British Business Bank’ that the Liberal Democrats have dreamed of, and the Coalition has mooted would work.
Do we really want politicians closer to decision-making around lending? Would ministers really want to be accountable when things go wrong?
More likely, and more comfortably for the Treasury, the new institution would probably start life looking like just a quango. It is not a ‘bank’ as we would recognise, nor really the kind of state investment bank that is on display in some other countries.
But is there in fact a more radical solution staring us in the face? There are many different whispers about potential suitors for ‘Rainbow’ – the name RBS insiders use when discussing disposing of the branches that Santander failed to buy.
On balance, the most likely outcome is some form of commercial sale. But in conversations with senior bankers familiar with the workings of RBS it is evident that there is a belief that there is merit in at least exploring a very different proposition.
Given the way that the European Commission required RBS to take a perfectly representative slice of their business and parcel it up for sale, the branches that Santander walked away from make up essentially a small but well formed business bank, with around a million high street retail customers.
What does the Government say it wants? What does the Government and the Opposition keep insisting? To get business lending working again. So why not swipe the branches that Santander walked away from?
The benefit to Government? The Business Bank as currently discussed will only be up and running in about 18 months time. If RBS could be persuaded to offer up Rainbow, and there are some in the City who believe this could happen, the Government would inherit a ready made business bank that is in relatively good shape.
There would be many pitfalls in what came next, but the opportunity is huge in two ways. Ministers may well have a better chance of fixing the UK’s long term lending problem as they say they want to, if they had such a tool – something that already works.
Added to that, there could be political benefits in taking over an existing structure, perhaps avoiding a damaging Coalition row about a Business Bank being created from scratch.
What you might think is harder to see is the benefit for RBS of just handing Rainbow over. Certainly, losing out on a commercial sale would have a cost.
Yet bankers at RBS harbour an anxiety about how to make a big, bold step back into the public’s favour. Handing over a decent chunk of a decent business would go a long way. And frankly, like others in different banks, there is a sense of frustration that for several years now they have been shamed publicly, again and again by politicians, for not lending enough.
Giving the Government a bank they made earlier would pass that challenge right back to politicians.
There is one very crucial question. How much do ministers really want to fix this themselves? Would politicians be bereft without the bank bogeymen?
Far fetched it may seem, but if the Government really believes it can fix lending, then it has a ready made bank ripe for the picking.
- This article appeared in the parliamentary magazine The House earlier this month.