RBS Sale Explained; Why is the government selling Royal Bank of Scotland?
Bankers like risk.
Financial Crisis in a Nutshell: The US market had lent BIG amounts of dollar to people in risky subprime mortgages (given to people with bad credit ratings). Basically, they shouldn’t have risked so much.
When people started defaulting (failing to pay back money owed) on their mortgages, the banks, like Royal Bank of Scotland, should have been able to cover the losses with their capital (AKA savings). But they didn’t have enough saved. Bummer.
The Labour government decided to save Royal Bank of Scotland by buying up shares in the bank. This meant RBS was declared solvent (able to pay your own way) and was able to get emergency funding from the Bank of England to keep going.
RBS was now essentially publicly owned; the UK government owns around 80% of RBS shares. By pouring money into a bank bailout, they hoped to prevent the bank from failing; which would have led to job losses and depositors losing money. In total around £107.6 billion of taxpayer’s money was spent on sorting the banks out.
The government spent £46 billion buying shares in Royal Bank of Scotland. Now a report by independent financial advisers, Rothschild, states that now is the best time to have an RBS sale to start selling the shares.
The small print: because the values of the RBS shares have dropped since they were bought, the government is set to make a loss of £7 billion on the RBS sale.
But because the other banks the government have bailed out have done better; the government is actually set to make a profit of £14 billion. Eventually.
Even though the government is making a profit, they will still be £7 billion down after the RBS sale. So they’ve lost money from bailing out a bank which didn’t do the best job of keeping our money safe. That’s £7 billion which could have been spent on other things.
But as we said, the government is estimated to make a profit overall. So it could be a lot worse.
People have blamed the bankers for the financial crash, others have blamed the government for not putting enough regulation in place to stop this from happening.
Change is coming; we explored how the new rules mean HSBC is separating its high street branches from the investment side of the bank.