Mark Carney: “Royal Bank of Scotland Needs a Clear Plan”

Back to the Future Feature

Bank of England governor Mark Carney recently told British newspaper The Daily Mail that Britain needs to clarify its long-term plans for the Royal Bank of Scotland (NYSE:RBS).

Carney’s sentiments are in-line with the beliefs of his predecessor, Mervyn King, who believed that uncertainty over the Royal Bank of Scotland’s future was damaging the bank’s ability to sustain lending. In 2008, the government of Britain injected 45.8 billion pounds into the Royal Bank of Scotland in order to save it from collapse. The government now holds an 81 percent stake in the bank.

“It’s absolutely imperative that the uncertainty around RBS is dissipated, absolutely imperative,” Carney said. But while he explained that banks now “have improved the infrastructure and the transparency in bank reporting, he admitted that where banks “still need to make a lot of progress is in the derivatives markets, huge markets, multi-trillion markets.”

Carney continued, “there has to be an increase in bank lending to new business with good ideas or existing businesses that have a good expansion plan.”

According to Carney, confidence is essential as the banks move forward — confidence on the part of banks when it comes to their lending practices and on the part of businesses to borrow. When Carney announced a guidance policy on interest rates earlier in August, this idea was at the heart of his argument.

“As the recovery progresses, you need to take lending capacity and shift it from existing businesses that aren’t going to pick up,” Carney said.

Carney also said that the Bank of England would continue its stimulative monetary policy until British economic growth became more self-sustaining.

Carney said, “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.”

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