The report said that UKFI, established to manage the government’s stake in the state-supported banks, had failed to stop political interference in the running of the banks.
“The government has interfered in the running of the two partly state-owned banks, particularly RBS,” the report said. “On occasions it has done so directly, on others it appears to have acted indirectly, using UKFI as its proxy. The current arrangements are clearly not acceptable.”
“Whatever the degree of interference, UKFI will increasingly be perceived as a fig leaf to disguise the reality of direct government control. The current arrangements therefore cannot continue.”
The report floated the idea of adding further distance between UKFI and central government but said this was ‘extremely unlikely’ to end interference from the state. Instead it recommended that UKFI be folded and the Treasury made directly responsible.
“In the present economic and political climate, governments will continue to be tempted to influence or intervene in the banks,” it said.
The commission later said that the current strategy for returning RBS to the private sector had failed and that the government should consider the possibility of splitting the lender into a good and bad bank.
“There may be significant advantages in doing so, including focusing the good bank on UK retail and commercial banking and, by freeing it from legacy problems, strengthening its ability to lend and making it a more attractive investment proposition which could subsequently be privatised at a good price.”
