Ex-RBS CEO says UK should consider bank break-ups

Britain should consider breaking up bailed out lenders Royal Bank of Scotland and Lloyds to boost competition, according to a banker who drove the build-up of RBS.

The banker -- former RBS CEO and Chairman George Mathewson -- made his comments in a submission to Britain's Independent Commission on Banking (ICB). The Commission is considering whether big banks need to be broken up after the financial crisis, when RBS and Lloyds had to be rescued with huge taxpayer bailouts. "The Independent Commission should seriously consider requiring RBS to sell off all of its insurance business and to split into two separate banks -- which would be RBS and NatWest," Mathewson said in his submission to the ICB. Mathewson had masterminded RBS's 20 billion pound ($31.62 billion) takeover of NatWest in 2000. "I do believe, that in the interests of competition, the merger of HBOS and Lloyds was misconceived and Lloyds Banking Group should be broken up," he added. The ICB said on Wednesday broader opinion was divided over whether or not the top banks should be split, and whether or not retail banking should be separated from investment banking. Break-up threat Regulators around the world are looking at whether to restructure banks deemed "too big to fail" and which could mean a new round of taxpayer-funded bailouts if they embark on the risky practices which led to the credit crisis. Britain's banking industry is dominated by the "Big Four" of Lloyds, RBS, Barclays and HSBC, which have all fought against a radical restructuring of their sector. Lloyds has resisted calls to split off the HBOS retail bank it bought in a government-backed merger at the height of the crisis in 2008. Barclays, HSBC and RBS have said an excessive clampdown on their investment banking arms could disadvantage them with regards to rivals in Wall Street or Asia. Mathewson's call to split Lloyds and RBS follows a similar view from the head of the UK's Office of Fair Trading, who last week said authorities were right to examine splitting them up. At a speech on January 22, ICB head John Vickers did not explicitly recommend a full break-up of the banks but said the ICB would consider "forms of separation" between their retail and investment banking businesses. Vickers said companies could consider ring-fencing banks' retail deposits from their investment banking activities and forming separate subsidiaries for these different units. Under this structure, banks would have to allocate specific amounts of capital for these units or for operations in different countries, as Spanish bank Santander does with its British arm. The units are legally ring-fenced but remain under the parent's ownership. Nationwide, Britain's biggest mutually owned savings society, told the ICB this option might be better than a full split between retail and investment banks. The Confederation of British Industry (CBI) and British Bankers Association have argued that splitting up the country's banks would harm Britain's role as a leading global financial centre and prove to be too costly to undertake. The government also has to tread carefully since it plans to sell its stakes in RBS and Lloyds at some point. Restructuring those companies could hurt the value of its shareholding by causing a decline in their stock prices. The ICB will publish an interim report in April before a final report in September.