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Boost lending via market-wide schemes not RBS, says think tank

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The Government should focus on market-wide schemes to boost lending rather than nationalising the Royal Bank of Scotland, says a think tank.

FT reports suggest the Government is considering buying out the remaining 18 per cent share of RBS it does not currently own for £5bn after growing frustrated with the lack of lending to business.

But Demos director David Goodhart says the Government should focus on schemes that benefit the entire financial sector and not just one bank.

He says: “Rather than fully nationalising RBS, it would be better for the Government to promote lending through market-wide facilities – which have less conflict with state aid requirements – than through one large institution still working through the effects of its dramatic collapse four years ago.

“This is what the government seem to be aiming for through the funding for lending scheme – though we’ve seen several lending schemes in the past few years make little difference. This one needs to work.”

Goodhart says a lending boost would be constrained by EU law and a focus on balance sheet restructuring.

Former Labour chancellor Alistair Darling told the FT: “I would question whether the benefits would outweigh the undoubted risks you are taking on. 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.”

New Economics Foundation head of finance and business Tony Greenham is arguing for full nationalisation but believes the debate has become muddled.

He says: “The bad argument to do it is to fiddle with its lending criteria to small business in a way that abandons its commercial criteria. This is what is being suggested by opponents.

“The real point of buying out minority shareholders is to restructure the bank and set it up as an institution with objectives to deliver a commercially profitable performance while delivering some public good.”

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