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RBS to Be Fully Nationalized?

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LONDON -- According to the Financial Times, the U.K. government is having a powwow to consider buying out the remaining shares in Royal Bank of Scotland (LSE: RBS.L  ) that are still in private hands, with a view to boosting the bank's lending to businesses.

RBS is currently 82% owned by taxpayers, and the FT estimates that the acquisition of the remaining 18% would cost in the region of 5 billion pounds, in addition to the 45 billion pounds already invested in saving the bank.

The other bailed-out bank, Lloyds Banking Group (LSE: LLOY.L  ) , is only under 41% government ownership, so pursuing all-out ownership of that one would be a good bit less realistic.

Forced lending
The problem is that the government's urging of banks to increase their lending to businesses, coupled with a lengthy program of quantitative easing and the release of cheap cash to banks specifically for that purpose, has not achieved its targets, and smaller firms are still struggling to get the cash they need.

Forcing RBS to crank up its lending is seen by some as the only realistic alternative at the moment.

Chancellor George Osborne is reported to be opposed to a full buyout, as that would land taxpayers with 100% of the bank's debt liability, quite a bit of which is toxic -- but we're 82% in that soup already, so it's not likely to make a great deal of difference.

If the mooted plan does go ahead, there will surely be scrutiny from banking regulators -- a government-owned bank offering cheap loans could potentially raise some competition headaches.

We shall have to wait and see if the FT is right on this one.

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Alan does not own any shares mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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