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Rbs / Lloyds Too Big To Break Up?

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On 13 October 2008 Gordon decided to rescue RBS / Lloyds / HBoS.

Lloyds got to take over HBoS in a forced merger and RBS simply was too big to do anything other than to take it over.

Currently reading Unsettled Account (worth reading I think) and it has a couple of chapters on bailouts / mergers / regulations and the reasons why they happen.

One of the reasons for rescuing he argues is to stop contagion and the failure of one bank spreading creating a domino effect, thus policy makers prefer to bailout / rescue the banks than run the risk of collapse. Considering the size of these banks the economic hit would have been severe if these banks had failed. Certainly during crisis the UK was having a serious banking crisis with B&B / Northern Rock having already failed the contagion was spreading and the bigger banks came under threat as their own weaknesses because exposed.

If the bigger banks failed would it have effected the payrolls of hundreds of companies? Was this a risk the politicians could take. Politically they where caught between a rock and a hard place, let them fail and the electorate would be asking why they weren't rescued, rescue them and the electorate then wants to know why they are picking up the tab for the greed of bankers.

Previously in the UK during the 1800's some banks operated with unlimited liability, ie the shareholders pick up the loss. When the City of Glasgow Bank failed everyone was held accountable and the directors where jailed, although this did take a toll on local businesses. Should the regulations be updated to put back some of this unaccountability ie any person who has been a director in the past 5 or 10 years of a failed bank loses all pension entitlement and property? Would this reduce moral hazard yes your bank will get rescued but it will cost the people who ran the bank dear.

We heard a lot about how the banks had become too big fail, yet the govt still hasn't taken the chain saw to these groups and broke them up.

National Westminster Bank

The Royal Bank of Scotland

Child & Co.

Drummonds Bank

Lloyds TSB branch network – England & Wales

Cheltenham & Gloucester branch network – England & Wales

Lloyds TSB Scotland branch network – Scotland

Bank of Scotland branch network – Scotland

That's 9 banks if TSB becomes it's own bank again that the UK govt could create yet only 2 entities remain. Are the potential losses on the books still so severe that breaking up these two banks into 9 would plunge them all into an insolvency crisis meaning that they are only "viable" financially as giant monoliths?

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Most would be too small to be viable ignoring the pre existing "hangover" issues from the boom era. i.e. there is a minimimum size to a retail bank in order than it can offer a full range of products adequately and profitably.

Splitting each group into 2 (unequal) parts is probably about as much as they could do in terms of setting up sustainable banks.

Coutts and Ulster Bank (part of natwest) are RBS owned but not listed? Would they stay part of Natwest?

Re the splits the smaller part is effectively a good bank only i.e. Project Verde / TSB (good bank) with Lloyds remaining a good / bad bank.

Edited by koala_bear

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Lloyds would never have bought the toxic HBOS in the first place (effectively sparing Gordon Brown's blushes at seeing another Northern Rock) if it wasn't for the carrot of being able to grab a larger-than-previously-acceptable slice of the market as a result.

Quid pro quo.

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Lloyds would never have bought the toxic HBOS in the first place (effectively sparing Gordon Brown's blushes at seeing another Northern Rock) if it wasn't for the carrot of being able to grab a larger-than-previously-acceptable slice of the market as a result.

Quid pro quo.

Exactly and the branches they are now being forced to dispose of are some of the less attractive ones (i.e. ex C&G, Country towns with poor transport links etc.)

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