LONDON Britain should end the uncertainty over long-term plans for state-controlled Royal Bank of Scotland (RBS.L), Bank of England Governor Mark Carney said in a newspaper interview.
Carney's position echoes that of his predecessor, Mervyn King, who said RBS' ability to sustain lending was being hampered by a lack of clarity over its future.
Britain's government ploughed 45.8 billion pounds into RBS to save it from collapse in 2008, and now holds an 81 percent stake.
Carney would not be drawn on whether he thought RBS should be split into a 'good' bank and a 'bad' bank - something advocated by King and recommended by a parliamentary commission - but made clear the status quo was a damaging one.
"It's absolutely imperative that the uncertainty around RBS is dissipated, absolutely imperative," Carney told the Daily Mail newspaper.
Carney said the core of the banking system had been "substantially repaired" but it was still not as strong as it needed to be. He singled out the opaque world of derivatives trading as a particular concern.
"We have improved the infrastructure and the transparency in bank reporting," he said. "Where we still need to make a lot of progress is in the derivatives markets, huge markets, multi-trillion markets."
Carney said giving banks the confidence to lend and businesses the confidence to borrow was at the heart of the guidance policy on interest rates he announced earlier this month.
Still, he said it was wrong to expect a rapid increase in overall lending. What was needed was an increase in lending to firms that were expanding.
"As the recovery progresses, you need to take lending capacity and shift it from existing businesses that aren't going to pick up," he said.
Asked whether the Bank of England would provide more quantitative easing, Carney said monetary policy would remain simulative until British economic growth was self-sustaining.
"We are telling you the minimum amount of stimulus that we're going to provide. There could be more if necessary. But there won't be less. We are absolutely clear on that," he said.
(Reporting by Christina Fincher)