Page last updated at 13:50 GMT, Sunday, 11 October 2009 14:50 UK

Huge banks 'could be broken up'


The chancellor was speaking a year after the bank bail-out

The huge financial groups created during last autumn's banking crisis may face being split up in the future, the chancellor Alistair Darling has said.

Mr Darling told the BBC's Politics Show Scotland that RBS and the Lloyds Banking Group may "need to divest themselves" of some of their business.

EU regulations about market domination may force banks into the move, he said.

Mr Darling was speaking exactly a year since three of the UK's biggest banks were bailed out by the government.

In response to the global financial crisis, the UK government nationalised Northern Rock and Bradford and Bingley, and put £37bn of capital into RBS, Lloyds TSB and HBOS.

The taxpayer now owns 43% of Lloyds Banking Group - which took over HBOS - and 70% of RBS.

What I found incredible was when we got the bankers in, one or two of them said they didn't need capital
Alistair Darling

However, the chancellor told the BBC that the EU's competition commissioner may force the sell-off of some of the banks' empires.

He said: "The new management at RBS have been going through all the books, root and branch, and they've already decided there's some things they had in the business which they don't see as core to what they do and over time they will seek to sell it.

"They key thing is that none of this, even if the European Commission says they've got to do this or that, is not going to happen tomorrow morning.

"The commission have made it quite clear to us that they're looking over a longer period, these discussions are still going on, but it could be over a number of years."

'Need competition'

When asked if he expected the commission to order the break-up of Lloyds Banking Group and RBS, he said: "What the commission could well say is that they need to divest themselves of part of it.

"They're not going to say you'll have to break the thing up and scatter it to the four winds, that would be nonsense."

Mr Darling accepted that the UK banking system was currently dominated by a few big players, and that the ruling could create an opportunity to boost competition in the sector.

"What you want to avoid is a situation where in five years time, there are about three or four banks, all charging the same amount with the same terms and conditions," he said.

"You need competition in the banking system. I would like to see more new entrants come in."

This weekend in 2008, the UK government ploughed billions of pounds into HBOS, RBS and Lloyds "simply to keep the bank doors open".

'Slippery slope'

However, the chancellor revealed that some of the bosses of the institutions on the brink of ruin were in denial about the severity of the crisis.

"What I found incredible was when we got the bankers in, one or two of them said they didn't need capital, and were arguing right up to the wire," he said.

He said he found it odd that the government, the Bank of England and the Financial Services Authority could see that the banking system was on a "very slippery slope", but that some bankers did not agree.

At the time, the former RBS chief executive Fred Goodwin was reported to have described the bail-out as a "drive-by shooting".

However, the chancellor refused to name the individuals involved, saying "it doesn't really help now".

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