FORMER Bank of England monetary policy committee member Adam Posen has called for the break-up of Bank of Scotland's owner Lloyds Banking Group as well as Royal Bank of Scotland to improve competition and direct more cash to small companies.
Mr Posen, who stepped down last summer, told MPs: "We probably should break up at least the banks that are currently in Government/public control."
His comments came a day after Mr Posen, now president of the Peterson Institute for International Economics, mooted the splitting of RBS in part because it would make the 82% state-owned lender easier to sell.
Mr Posen told the Treasury Select Committee that small business funding in the UK is a "market failure" and "just paltry" compared with what is available in countries such as France, Germany, the US and Japan.
"We need more new entrants into the banking system," he said.
But he said this did not necessarily mean detaching Halifax Bank of Scotland from 40% taxpayer-owned Lloyds Banking Group, where it has sat since its rescue takeover in 2009, or splitting NatWest and RBS.
Instead, it could mean forcing them to sell bank branches to emerging rivals, he said, adding: "The idea is to get some new players over the barriers to entry."
Lloyds and RBS are both in the process of selling portfolios of branches to rivals. But the Independent Commission on Banking's 2011 report, which is guiding banking reform, did not recommend splitting the two banks further.
Mr Posen said incoming Bank Governor Mark Carney could face a big culture shock when he moves from his current post as Governor of the Bank of Canada because of the leeway for dissent allowed to policy-makers.
Nevertheless he warned that incumbent Governor Sir Mervyn King is too powerful and by the time Mr Carney succeeds him the position will be even stronger.
After Sir Mervyn blocked calls for the Bank to buy corporate bonds to boost the economy, Mr Posen said he was "quite furious" at people in the Bank and the Treasury "who let him get away with that".
Mr Posen said two ideas associated with Mr Carney, signalling where interest rates will be long into the future and targeting the size of the economy rather than inflation, "would be a grievous mistake".
He also restated his view that Chancellor George Osborne was cutting Britain's budget deficit too rapidly. He said the idea that business confidence is improving is "false on any market evidence we have".
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article