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RBS debt origination business capped by competition watchdog

The latest amendments to the rescue of RBS have brought into focus the trade-off that goes with government bailouts. They also illustrate how the European Commission is looking to shape the competitive landscape of the banking sector – in particular investment banking.

As well as having to sell assets (in RBS’s case its insurance business and a stake in a commodities venture) the European Competition Commission is now placing caps on how much business the bank can write within its capital markets division.

For the next three years, the ECC will monitor annually the consolidated global debt league tables (comprising bonds, loans and project finance) to make sure RBS finishes no higher than fifth. This will exclude short-term money market instruments and self-led deals that are part of the bank’s own funding programme.

The thinking behind the move is that banks that have received government funding should not gain an unfair advantage by underwriting market share, or undercutting more independent rivals. However, it seems rather bizarre that the ECC should approach this in such an arbitrary fashion. There is little explanation as to why the ranking of fifth has been chosen and very few details of how that line in the sand has been derived. Phone calls to the office of Neelie Kroes, the commissioner for competition in Brussels, weren’t answered when Euromoney called Tuesday.

On the face of it, in a year that’s provided bumper revenues for debt originators, this could curtail RBS’s long road to recovery.

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