Readers Question: You commented, “In the case of RBS they bought a stake in Amro a Dutch bank with heavy exposure to the US subprime market. Therefore RBS has had to write off a record £28bn and are now facing nationalisation”
What exactly is nationalisation and is it a good or bad thing for a consumer who banks with them?
Nationalisation occurs when the government takes control of a firm (or whole industry). It means that the government is the sole shareholder, and can decide how the firm is run.
At the moment RBS is a PLC, which means it is owned by shareholders. But, due to large losses it has required bailouts from the government. The government has gained an increasing share in the company in return for its bailouts.
If the government nationalised and took a 100% share, shareholders would probably get little if anything (but, then without government intervention RBS could go bankrupt)
How Will Nationalisation Affect the Consumer?
Not much would change immediately, the government says it doesn’t want to get involved in the day to day running of the bank. But, the government is unlikely to resist the temptation to meddle. In particular, it is more likely that RBS will be told to pass on the full interest rate cuts. The government may also tell RBS it has to lend more loans and mortgages to try and prevent an economic downturn. It is possible saving rates could decrease, but, RBS will probably need to be attracting deposits.
However, the cost of bailouts could lead to higher bank charges as the government makes Banks may greater insurance: see: consumers to foot bill for higher bank charges