The crisis at the Co-operative Bank over the massive £1.5bn hole in its balance sheet will be a huge handicap to those arguing for a mutual option to be considered as Royal Bank of Scotland is transferred out of the government's hands.
It will count for little in the very political debate that will surround RBS's future that the Co-operative Bank was a PLC and not a mutual itself. The opponents of mutuality as an option for RBS will point straight to its 100% ownership by the Co-operative Group and argue that mutuality offers no extra protection, no more customer-centric approach and no better corporate governance for a bank than the private sector. Sadly, they have a point.
This doesn't, in my view, rule out the mutual option which I have long been in favour of. In fact, if anything, it strengthens the case for the break-up of RBS into smaller, specialised units, some of which could be mutuals. There are several options for breaking it up, either by type of institution and business or regionally. Either would put a big tick in the box that says we need greater choice and diversity in our financial services sector. The Co-op debacle shows that mere ownership by a mutual is not enough: we need to see what real ownership by customers can do.
There are already plenty of examples of successful financial mutuals here and – even more so – in Europe so no-one should be writing-off the model as an option for the future of RBS.
The political reality, however, is that George Osborne is desperate to deliver on his pledge to return RBS to the private sector before the next election so the pressure is on to look for a quick and dirty solution that will be politically popular even if not financially or prudentially the ideal option. An artificially pressurised timetable like that will certainly rule out proper consideration of more imaginative ownership options, not least because the new solvency rules for mutuals require alot more work and that will not be completed in time to fit in with the Chancellor's rush to privatisation.
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