James Moore: If you really want RBS to start lending to firms, it should be state owned

Outlook The Parliamentary Commission on Banking Standards has, it seems, smelled a rat. It wanted an independent review carried out on whether it might not be a good idea to split RBS into a good bank and a bad bank. The reasoning was that an RBS shorn of its toxic assets should be much freer to support the British economy by lending, particularly to businesses.

However, to no great surprise it looks very much as though the bankers hired by the Government to do the review will come to much the same conclusions as the bankers who've been running RBS; namely that this would be a jolly bad idea.

While the Chancellor, George Osborne, has insisted he has an open mind on the issue, it's pretty obvious that this also chimes with the prevailing view in Whitehall, particularly given that a split would inevitably throw a spanner in the works of the state getting shot of RBS.

An annoyed commission has now sought to raise a red flag by means of a letter to the Financial Times.

But aren't we having the wrong discussion here?

There is, in point of fact, a third option which is scarcely even being mentioned as part of the debate.

If the desire is for RBS to support the UK economy by lending, wouldn't the easiest, and simplest, way of achieving that be to forget either option and simply bring the whole thing fully into state ownership?

After all, under most realistic split options the "bad" part of the bank would likely have to remain on the state's books for quite some time anyway.

The remaining good bank, shorn of the difficult bits, would then presumably be privatised in short order given much of the risk would be removed, making it a rather attractive proposition to outside investors.

To whom the bank would then be responsible.

And their interests might not necessarily chime with those of Great Britain plc. It needs business lending. They might have other priorities.

While the bank would still be susceptible to public (and regulatory) pressure, those priorities would have to come first.

By contrast, a nationalised RBS could be directed to the areas of the UK economy where its capital could be best deployed for the UK economy's benefit; small businesses and the like.

Of course, nationalisation would be anathema to many of those who favour a split, such as Lord Lawson, a prince of privatisation in a previous life.

However, it would be perfectly possible to make clear that the arrangement was a temporary one until such time as the bank, and the economy it is supposed to serve, were off the critical list.

Arguably it's what the last Labour government should have done during the financial crisis, as opposed to buying in to RBS at a ridiculously inflated price.

That was at just over 500p and it will be a long time before the shares get anywhere close to that level even if the new chief executive Ross McEwan is some sort of business superhero.

Labour was probably scared that such a move, however sensible, would leave it open to the charge of reverting to old-style socialism.

However, the current Tory-led Coalition need have no such concerns. It could present such a plan, which might prove electorally very popular, as a common-sense move made in response to unusual circumstances and motivated by sensible pragmatism.

Some might then even hail it as courageous. Which is, of course, exactly why it won't happen.