EU: RBS was too big to operate or supervise

posted: 13 DAYS 6 HOURS AGO

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BRUSSELS -The EU's top antitrust official said Thursday that the Royal Bank of Scotland grew so big during a banking boom that it was "simply too big to operate and supervise."

EU Competition Commissioner Neelie Kroes said banks' ballooning balance sheets should have set off investor's alarm bells and that she was now trying to "build up solid banks by working with them to face certain realities."

Under pressure from EU regulators who must approve government bailouts, Germany's Commerzbank and the Netherlands' ING have shrunk their business and shed commercial banking units. Last week Lloyds and Royal Bank of Scotland said they were preparing to do the same to secure EU backing for bank rescue programs. RBS is planning to dispose of 318 branches, or 14 percent of its British network within four years.

The move is meant to compensate for the advantage the bank gets from joining a government program to guarantee 282 billion pounds in losses on toxic assets.

Kroes said she wasn't "some kind of bank destroyer" but a referee for banking bailouts "making sure there is a market in the long-term." She said that investors and regulators need to check that large banks have strong long-term business models.

"Many practices in the banks were crazy. It is appalling that the banks themselves did not understand the risks, but it should also have been obvious — if we looked harder — that something was wrong," she said in prepared remarks for a speech she gave in Amsterdam.

She said both British banks were clearly overloaded with risk before the crisis, with Lloyds running a loan-to-deposit ratio of 180 percent and RBS tripling its balance sheets in two years from 2006 "growing to be larger than all" European economies except Germany.

The same concerns have been voice about major U.S. banks being "too big to fail" but so far President Barack Obama's administration has stayed away from any proposal to break them up.

2009-11-12 10:06:08