RBS under attack over SME lending

Allegations that RBS forced viable businesses into insolvency has landed the bank once more in hot water.

The Royal Bank of Scotland is facing a possible criminal investigation by the Serious Fraud Office (SFO) into allegations of unscrupulous treatment of distressed small business clients.

An independent report by government adviser Lawrence Tomlinson has claimed that the bank currently 81% owned by the state deliberately forced some borrowers into turnaround and insolvency so as to profit from higher fees and the opportunity to take control of their assets.

The allegations unsurprisingly drew a strong reaction from politicians. Chancellor George Osborne called them "shocking". Business Secretary Vince Cable said the evidence behind Tomlinson's claims seemed "solid" and "appalling".

In addition to the potential SFO investigation, the Financial Conduct Authority and the Prudential Regulation Authority will also review the report, while RBS has commissioned law firm Clifford Chance to conduct an inquiry.

What the commentators said

But while RBS may deserve whatever punishment the authorities ultimately mete out, it's worth reflecting on other factors that may have helped put it in this position. Concerned about the banking system being bogged down supporting "zombie companies", regulators pushed RBS to "put them out of their misery".

There's an obvious conflict between this and politicians urging it to support small businesses, so it's not surprising if some viable businesses were poorly treated as the bank tried to balance these demands.

Indeed, this cuts to the heart of difficult questions about RBS's future, said the Lex column in the Financial Times. It's clear that politicians want it to be lending more to small businesses; it's also clear that they want it "to be nicer to them when it does so".

Given low prospective returns on such lending, that's not a terribly attractive proposition for investors.

Furthermore, RBS is now well-established as a whipping boy: "Politicians of all sides can give themselves a popularity boost by firing accusations at it". Given that, selling the state's stake in the bank, as Osborne plans to do, "will be a tough job".

Recommended

Inflation is the easiest way out of this – just don’t expect politicians to admit it
Inflation

Inflation is the easiest way out of this – just don’t expect politicians to admit it

The UK government borrowed £34.1bn in December, a record amount for that month. Britain's debt pile now amounts to 100% of GDP. How are we going to pa…
22 Jan 2021
Why we won’t see a house-price crash in 2021
House prices

Why we won’t see a house-price crash in 2021

Lockdown sent house prices berserk as cooped up home-workers fled for bigger properties in the country. And while they won’t rise quite as much this y…
18 Jan 2021
A beginner’s guide to inflation – everything you need to know
Inflation

A beginner’s guide to inflation – everything you need to know

One of the most frequently mentioned topics in the news these days is inflation. But what exactly is inflation and how does it affect the economy and …
18 Jan 2021
Why the City should create a single financial market with the Swiss
Economy

Why the City should create a single financial market with the Swiss

A tie-up between London and Zurich, two global financial centres, could pay huge dividends for both, says Matthew Lynn.
17 Jan 2021

Most Popular

Why we won’t see a house-price crash in 2021
House prices

Why we won’t see a house-price crash in 2021

Lockdown sent house prices berserk as cooped up home-workers fled for bigger properties in the country. And while they won’t rise quite as much this y…
18 Jan 2021
Inflation is the easiest way out of this – just don’t expect politicians to admit it
Inflation

Inflation is the easiest way out of this – just don’t expect politicians to admit it

The UK government borrowed £34.1bn in December, a record amount for that month. Britain's debt pile now amounts to 100% of GDP. How are we going to pa…
22 Jan 2021
When will the US stockmarket bubble burst?
US stockmarkets

When will the US stockmarket bubble burst?

With US stocks more expensive than before the Wall Street crash of 1929, there are growing signs of “mania”. But what will push markets over the edge?
22 Jan 2021