RBS and Lloyds: A tale of two state-owned banks The diverging fortunes of the two banks are a reflection of the shifting attitude of the authorities towards the different business models applied by the lenders. In the first couple of years after the financial crisis, RBS was able to successfully argue that its universal model based on maintaining large operations in retail, commercial and investment banking represented the most profitable and secure way to run its business. The Bank of England, and in particular its former Governor Lord King of Lothbury, were never comfortable with this approach and over time convinced the government that more radical reform was needed. At the same time, Lloyds' UK-focused retail and commercial banking business has increasingly become the template for what government ministers have decided a future RBS should become. It is also likely that Mr McEwan will want to take a hard look at all the bank's operations and in the parlance of the City "kitchen sink" a few businesses, which is likely to cause a further dip in short-term earnings. The most important question, though, is whether at the end of this process there will be a bank left that is capable of making the amounts of money needed to justify a profitable return to the private sector. The answer to this probably yes, but is likely to be well behind the privatisation trajectory for Lloyds, which could be out of the government's hands within 18 months if the Treasury were minded to sell.