Key Bailout Figure Calls for Break-Up of Banks

Lord Myners, City minister in the last government and a key figure in the financial bail-outs at the height of the global crisis, has called for a break-up of Britain’s biggest banks.

Sharon Lorimer

Writing in Monday’s Financial Times, he argues that the future of the industry “lies in less monolithic institutions” and urges the Commission on Banking, appointed by the incoming coalition government in the summer, to focus on boosting competition. “The banking commission must give proper consideration to splitting one or both of Lloyds Banking Group and Royal Bank of Scotland.”

His argument will be seen by some as a U-turn. At the time of the bail-outs the then-City minister lent his support to chancellor Alistair Darling’s staunch defence of Britain’s global “super banks”, arguing that the industry should not be forced back to “cottage industry scale.”

The comments will be a bitter blow to Eric Daniels, Lloyds chief executive, who told the FT recently that the group was promised by the Labour administration that its rescue of HBOS would not be challenged on competition grounds – a pledge he said should stand in spite of the change of government.

But Lord Myners’ views echo a growing belief that the five-member Commission on Banking, chaired by Sir John Vickers, will focus more on the issue of high-street competition than the complex structural question of whether retail and investment banks – “casino banks” – should be allowed to remain under one roof as so-called universal banks.

He also argues that splitting off casino banks is “not necessary” – consistent with his stance when in government that capital regulation is the best way to deal with the risks inherent in universal banks.

In a recent public debate organized by the commission in Leeds, one commissioner – former gas regulator Clare Spottiswoode – warned that breaking up Lloyds-HBOS was a serious possibility.

Many observers believe that even if the Vickers commission comes up with a recommendation to break up Lloyds-HBOS, the government would not necessarily implement it.

For the Treasury, which owns 41 per cent of Lloyds, such a move would risk undermining the value of the stake and would impose yet another delay on the process of returning the stake to commercial ownership.

Unwinding the integration of HBOS, which has already cost billions, would also look like a waste of public money.

Lord Myners’ suggestion that RBS could be broken up – possibly along the lines of RBS and NatWest – is seen by analysts as even less likely. RBS and NatWest have largely been integrated. The brands are so geographically distinct that a split would not boost competition.

The Treasury said: “George Osborne is open-minded on all the issues that the Commission is looking at.”