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MPs call for Lloyds and RBS ‘bad bank’

Treasury select committee chair Andrew Tyrie

The Treasury select committee has called on the Government to investigate the pros and cons of breaking up Lloyds Banking Group and the Royal Bank of Scotland and to publish an analysis by June.

In its Budget 2013 report, published last week, the TSC said it wants to see an analysis of whether a split into a “good” and “bad bank” would work. The idea would be for a so-called “bad bank” to house toxic loans held by Lloyds and RBS.

Last month at a Parliamentary Commission on Banking Standards Bank of England governor Sir Mervyn King said a split is not “beyond the wit of man”, claiming the RBS rehabilitation was taking too long.

King’s plan was given support by Capital Economics economist Roger Bootle and Goldman Sachs chief economist Michael Saunders. Office for Budget Responsibility chair Robert Chote also claimed the lack of lending by RBS and Lloyds Banking Group was harming growth prospects.

The report states: “In the light of this evidence and statements by the Governor of the Bank of England, the committee recommends that the Government publish its analysis of the pros and cons of creating a ‘bad bank’ for the banks in which the Government has a stake.

”Such an analysis should include an examination of the fiscal and competition implications, and be completed by the time of the announcement of the Government’s spending review in June 2013.”



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