RBS to set up internal bad bank

Following RBS’s announcement the Bank of England has confirmed that the taxpayers’ contingent exposure to the banking system has been reduced by a further £8bn with the removal of the Contingent Capital Facility one year earlier than planned.

George Osborne said: “Today RBS sets out a new direction – a new direction that will lead it to being a boost to the British economy instead of a burden.

“This is part of our economic plan for sustaining the economic recovery and creating a banking system that works for Britain.”

Osborne said the bank will sell off more of its overseas operations and continue to shrink its investment bank so it has more capital to support lending to the British economy.

Coinciding with the decision is the release of the government’s review, RBS and the case for a bad bank, which the Chancellor announced in June this year.

The review concluded that an internal bank was the correct course of action rather than an external bank funded by the tax payer.

In a statement released by the Bank of England it said: “The Bank of England, as prudential supervisor of RBS, welcomes the development of a more focused strategy for RBS and the commitments of the board to specific actions that will bolster its capital position in the next three years.

“These actions should create a more resilient institution that is better able to support the real economy without any expectation of further government support.

"Given these developments the Bank of England fully supports the conclusions of the Review published today by HM Treasury.”