The head of the Bank of England has urged a deep restructuring of the Royal Bank of Scotland as he delivered his most stinging criticism to date of the way it has been run since its rescue by the government.
RBS needs to split off bad assets still on its books and build up new capital in order to improve its financial health and its ability to lend, Mervyn King said today.
He made his comments just weeks before the Bank of England takes on new powers to oversee banks.
King said it was "nonsense" that the government bailed out RBS but did not have more direct control.
"The whole idea of a bank being 82% owned by the taxpayer, run at arms' length from the government, is a nonsense," King told a parliamentary committee.
"The arguments for restructuring sooner rather than later are powerful ones,'' he added.
RBS, which owns Ulster Bank here, declined to comment on King's criticisms. The bank, once Britain's biggest but now its fourth-largest, has already undergone a massive restructuring since the UK government pumped in £45.5 billion in 2008 to keep it afloat.
The bank has shed around £900 billion worth of assets and says it is focusing on lending to British households and small businesses. The bank is in the fifth and final year of chief executive Stephen Hester's plan to restore it to health.
Hester has said the bank will then be in a position for the government to start selling shares prior to the next election in 2015.
King said Hester had "struggled manfully" to fix the bank but more aggressive action was needed. King added it should not take more than a year to a carry out a much more decisive restructuring of RBS and the hit to public finances of such a move was a price which had to be paid.
The Bank of England has taken an increasingly tough line on the amount of capital banks hold in order to protect them against the kind of shocks that triggered the financial crisis.
The government has chosen Bank of Canada governor Mark Carney, a leader of the global push for stronger banking regulation, to succeed King in July.
King, making one of his last appearances to lawmakers before he retires, also criticised the ability of bankers to speak to the government's top officials, even after the financial crisis.
"I was surprised at the degree of access of bank executives to people at the very top. It was certainly easier access to people at the very top than the regulators had," King said.
