Chancellor George Osborne must face up to taxpayer losses in Royal Bank of Scotland and accelerate plans to return the bank to the private sector, Bank of England Governor Sir Mervyn King said.
He told MPs the Government had failed to take decisive action to overhaul RBS and needed to complete a radical restructure of the bank to create a healthy lender within a year.
He said RBS was holding the wider economy back, but added it was “not beyond the wit of man” to split RBS into a “good” and “bad” bank to ensure the cleaned-up group could support lending and boost economic recovery efforts.
Sir Mervyn’s comments will come as a blow after RBS boss Stephen Hester last week insisted the bank’s return to the private sector was on track and could be completed within two years.
Sir Mervyn confirmed he had discussed his view on RBS with Mr Osborne, but the Chancellor has told the commission he believes there are “very considerable obstacles” to splitting RBS in two and backs plans to instead shrink its balance sheet and focus its activities on the UK.
RBS last week claimed improvements in the core bank would see it return to financial health next year as it reported underlying profits of £3.5 billion.
But bottom-line figures revealed the fifth year of losses since its £45.5bn Government bailout in 2008, plunging into the red by £5.2bn in 2012.