RBS: Sir Mervyn King suggests splitting up bank 6 March 2013 Last updated at 12:04 Bank of England governor Sir Mervyn King has said there is a case for splitting up Royal Bank of Scotland. He told the Banking Standards Commission that there was a "good bank, bad bank" within bailed-out RBS. Sir Mervyn said the arguments for restructuring RBS "sooner rather than later are powerful ones." He also warned that some banks were still "too big to fail" and said he was "surprised" at the degree of access bank executives had to top politicians. On RBS, Sir Mervyn said: "The whole idea of a bank being 82%-owned by the taxpayer, run at arms' length from the government, is a 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 that's become" to return RBS to the market. Restructuring the bank would be complicated, but the challenge was "not beyond the wit of man" to split RBS into a "good" and "bad" bank. If [regulators] were tough on a bank, the chief executive could go straight to Number 10 End Quote Sir Mervyn King Governor, Bank of England This has dragged on unnecessarily long. I don't want to blame anyone for this but I think the lesson of history is we should face up to it," he said. RBS is worth less than we thought and we should accept that and get back to finding a way to create a new RBS that could be a major lender to the UK economy. It's four-and-a-half years on (since RBS's rescue) and there is no immediate sign of it going back to the private sector. So I think that means that we have not been sufficiently decisive in either recapitalising the banks or restructuring them. Last week, RBS's chief executive Stephen Hester insisted that the bank's return to the private sector was on track and could be completed within two years. Unequal access Sir Mervyn also said that there were still banks that "were too big to fail," adding that "I think that is the single biggest challenge facing the new PRA" (Prudential Regulation Authority). The unknown question is whether the powers that we've been given will in fact be adequate to get rid of the too-important-to-fail problem. He only has a couple of months to go in Threadneedle Street, and Sir Mervyn King seems keen to drop some valedictory bombshells. He needed no second invitation to spell out a radical plan for RBS. Just hoping that at some stage in the future the government can start selling its majority stake was misguided, he said. The governor thinks the best plan is to accept the taxpayer won't get all the bailout money back. RBS should be split, allowing the "good" bank to grow and keep the "bad" bank in public hands, he said. The approach goes against the view of RBS chief Stephen Hester, who said last week he could get the bank ready for a possible flotation next year. Sir Mervyn's view also clashes with previously stated government policy. This governor is not going quietly. My own personal view is that it would be sensible to have a proper review after four or five years, not just of the ring-fence, but of a whole range of issues that I would put under the umbrella heading: Has the United Kingdom solved the too-big-to-fail problem. Sir Mervyn, who will be succeeded in July by Mark Carney, said he had much sympathy with regulators trying to manage the banking system both before, and after, the financial crisis. Regulators were up against powerful bank executives with direct access to politicians and policymakers. 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. [Before 2007, regulators] knew that if they were tough on a bank, the chief executive could go straight to Number 10. Over time, this has changed clearly since then, but the access probably hasn't. Bonuses The commission also heard evidence from one of the top UK financial regulators, who criticised the planned European Union cap on banker's bonuses. The Financial Services Authority's Andrew Bailey said a cap could lead banks just push up salaries, and this was "cash out of the door." He said that, unlike with salaries, there were often provisions to claw back bonuses if performance targets were missed. On Tuesday, European Union finance ministers vowed to press on with plans to cap bankers' bonuses at one year's salary, or two years if there was shareholder approval. Chancellor George Osborne opposed the move, fearing it could damage London's financial centre. Mr Bailey said: "It is much harder to get fixed remuneration back once it's paid."