Bank of England (BoE) governor Sir Mervyn King yesterday called for the splitting up of the Royal Bank of Scotland and its sale within a year to end the ''nonsense'' of state ownership.
According to Sir Mervyn, the UK risked a prolonged Japanese-style slump without a rapid privatisation of the high street lender.
He said it would need to be split into a ''good bank'', able to resume its role as a robust lender to businesses and families, and a ''bad bank'' saddled with the worst debts. He added this would be difficult to achieve but the challenge was ''not beyond the wit of man.''
The governor told MPs and peers on the Banking Standards Commission, ''The whole idea of a bank being 82 per cent-owned by the taxpayer, run at arms' length from the government, is nonsense. It cannot make any sense. I think it would be much better to accept that it should have been a temporary period of ownership only, to restructure the bank and put it back. The longer this has gone on the more difficult it has become to return RBS to the market.''
According to analysts, the governor's strongly-worded comments would add to the pressure on chancellor George Osborne, to find a way of returning RBS to the private sector over four years after the UK government bailed it out at the height of the banking crisis in October 2008.
RBS shares retreated after King's comments but staged a recovery, trading at about 314 pence at 2.06 pm British Time, up 0.5 per cent on the day.