Paul Myners calls for RBS and Lloyds to be broken up

Paul Myners calls for RBS and Lloyds to be broken up : Paul Myners, the former City minister, has reignited the debate over the future of British banking by calling for the break-up of Lloyds Banking Group and Royal Bank of Scotland.

Myners argued that the public suffers because the UK financial industry is dominated by just a handful of banks. This harms society by restricting competition, and magnifies the damage to the wider economy when one of these firms fails, he warned.

With the government-appointed Commission on Banking already investigating the sector, Myners has added his weight to the argument that one, or both, of Britain's part-nationalised banks should be broken up.

"Money moves faster than labour, or raw materials. If the banks mess up, society suffers. The future lies in less monolithic institutions, with more fluid entries into and out of the banking sector. And this, in turn, may mean undoing existing bank mergers," wrote Myners in an article in today's Financial Times (registration required).

"In practice the banking commission must therefore give proper consideration to splitting one or both of Lloyds Banking Group and the Royal Bank of Scotland."
Myners played a central role in the last Labour government's response to the financial collapse. He joined Gordon Brown's "economic war cabinet" at the start of October 2008, just days before the government launched a £500bn bailout plan. That package led to the partial state ownership of both RBS and Lloyds.

Myners, who had previously lobbied against trimming Britain's banking industry back to "cottage industry scale", is now adamant that the biggest banks should be shrunk. He argued that allowing the sector to be dominated by a handful of players leads to "excess profits, poor customer service and a dearth of innovation, none of which are likely to create a stable system".

However the former director of NatWest – who also chaired the Guardian Media Group – does not believe that banks should be forced to split their retail and investment banking arms. Instead, he argues that new rules on capitalisation, subsidiarisation (legal firewalls between different departments), limits on cross-funding and resolution processes will result in a more competitive structure. He also argued that the government should help to establish smaller banks focused on serving Britain's small and medium-sized businesses.

"In general we also need smaller banks, supported by more capital," said Myners, who in January 2009 criticised Britain's banking bosses for acting like "masters of the universe".

Today RBS, Lloyds, Barclays and HSBC control almost three quarters of Britain's banking market. RBS grew rapidly under Sir Fred Goodwin, its disgraced former chief executive, through a series of acquisitions that culminated in the disastrous takeover of ABN Amro. Lloyds's partial nationalisation was triggered by the decision to merge with HBOS, when the mortgage lender appeared close to collapse.

Last week the bosses of Lloyds and RBS both told MPs that UK retail banking worked well, despite the concentration of business among the Big Four. Eric Daniels, who agreed the HBOS deal, told the Commons Treasury committee that he was "not sure that dividing banks further would give a better outcome." Stephen Hester, who succeeded Goodwin at RBS, said that discussions over the size of banks was a "red herring", arguing that RBS's scale helped it to deliver a better service.

The Commission on Banking, which will issue its report in 2011, is headed by Sir John Vickers. Last month Vickers was criticised for describing the Lloyds-HBOS merger as "a mistake".

Bruce Packard, banking analyst at Seymour Pierce, said that Myners' views were "significant", given his role in the nationalision of RBS and Lloyds.

"We first wrote about bank break-ups in May, and suspect that part of the reason momentum has grown behind the idea is the bonuses and large salary rises at government-owned banks," said Packard. Articel From http://www.guardian.co.uk/business/2010/dec/13/myners-calls-rbs-lloyds-break-up For the latest updates PRESS CTR + D or visit Stock Market news Today

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