* Cable proposes "British Business Bank" in leaked letter
* Says it could expand lending rapidly to companies
* Britain preparing launch of credit easing
By Tim Castle and Sven Egenter
LONDON, March 6 Britain should split its
bailed out Royal Bank of Scotland and create a business
bank dedicated to boosting lending to companies and supporting
exports, Business Secretary Vince Cable said in an internal
Britain owns 82 percent of the loss-making RBS after
rescuing it along with Lloyds Banking Group during the
2008 financial crisis.
Cable, from the coalition's smaller Liberal Democrats, is a
long-time critic of Britain's banking system for failing to lend
enough to business and who had previously pushed for
deposit-taking banks to be separated from their investment
"My suggestion is that we recognise that RBS will not return
to the market in its current shape and use its time as ward of
state to carve out of it a British Business Bank with a clean
balance sheet and a mandate to expand lending rapidly to sound
business," he wrote in the letter published by the BBC and
confirmed by Cable's department as genuine.
"We should be willing to use such an institution to support
our other industrial objectives, such as supporting exports and
sectors identified as of strategic importance," he added.
The letter, dated Feb. 8, was addressed to Conservative
Prime Minister David Cameron and his Liberal Democrat Deputy
Cable's proposals are not government policy but the leak
casts a light on the internal debate within government on how
best to utilise its investment in RBS.
Britain used about 45 billion pounds of taxpayers' money to
rescue RBS, and eventually aims to sell it back to the private
Cable said the government "badly needed" an initiative that
would give confidence to businesses that "expansion would not be
choked off by the banks."
Britain's economy is still limping along after recovering
from a steep recession following the banking crisis and the
coalition is under pressure to find ways to boost growth without
breaking a strict austerity programme.
In the letter, Cable said the government lacked a
"compelling vision" of where the country was headed beyond
sorting out the "fiscal mess".
A lack of lending to smaller and medium-sized businesses
remains a political hot topic in Britain after the government's
"Merlin" agreement with the country's large banks failed to
funnel enough credit to smaller firms.
Banks have blamed low levels of lending on a lack of demand,
but smaller firms frequently complain about tough lending
In a BBC radio interview after the letter was published
Cable said he was floating one of a number of options that could
be used to improve the flow of lending to small-scale companies.
But he stressed that the "key emphasis" of current
government policy was to get its scheme of credit easing up and
running, with the details due in this month's budget statement.
Britain's finance minister George Osborne said on Tuesday
the credit easing scheme was ready to be launched as soon as the
European Union gave its green light as a way of unlocking a
Bank of England policymakers have also said the lack of
lending is an issue. BoE governor Mervyn King as well as
external policymaker member Adam Posen have both suggested using
the banks partly owned by the government as a way to fix the
RBS reported a full-year loss of 2 billion pounds for 2011,
the fourth straight year in which it has made an annual loss.