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LONDON, Jan 21 (Reuters) - Breaking up Royal Bank ofScotland could make it easier to sell the partstate-owned British lender, a former Bank of England monetarypolicy committee member said on Monday.
Adam Posen told lawmakers such a step would also boostcompetition in a market dominated by RBS and three other biglenders - Barclays, HSBC and Lloyds.
Britain owns 82 percent of RBS and has a 40 percent stake inLloyds. The government wants to return both to full privateownership and make a profit for taxpayers.
"A clean investment bank or clean commercial bank may be aneasier thing to sell," Posen told a panel of lawmakers.
Posen said the authorities were assessing if the two banksneeded more capital, and whether there was a backlog of loans tobe hived off, perhaps into a "bad bank", as Ireland has done.
The lawmakers form a commission that will recommendlegislative changes around March to improve banking standards.
Andrew Haldane, the Bank of England's director of financialstability, told the commission the central bank's FinancialPolicy Committee saw a "need for action" at Lloyds and RBS.
"The two banks are both in a position that it would bedifficult for them to attract private capital without somerestructuring of their balance sheet," Haldane said.
What might emerge is a simpler, "somewhat slimmer good bankpurged of its bad assets or suspect assets" and perhapsringfenced with extra capital requirements, Haldane said.
He would not say whether a "bad bank" should be created tomake a sale of the "good bank" easier.
The FPC is due to discuss in coming weeks an assessment ofhow much extra capital Lloyds, RBS and other banks may need.
Posen said regulators were still under pressure not to harmlarge financial centres such as London. "There is some room forbig dumb rules, to limit the right of discretion on the part ofregulators."
