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All change at RBS

• Robert Peston
• 11 Oct 08, 05:24 PM

As I said on the Ten O'Clock news last night, the UK's big banks are racing to raise capital, most of which will either come directly from taxpayers or will be underwritten by taxpayers.

The reason is that the Government has said that without the injection of new capital, banks won't be able to take advantage of a 拢250bn state guarantee for what they borrow from other banks and financial institutions.

And without this taxpayer guarantee, banks will continue to find it immensely difficult to raise vital wholesale money from other banks and financial institutions.

So it's a no-brainer for most of them to attempt to solve their capital and liquidity problems simultaneously.

What's more, the Treasury has made it easy for them to obtain the capital: the Treasury has offered to provide up to 拢50bn in aggregate directly; or if a bank wants to try to raise the capital from shareholders through a conventional sale of new shares, the Treasury will underwrite the shares, thus providing certainty that that the bank will get its money.

Which bank will be first to tap taxpayers?

Well I would expect Royal Bank to raise the capital it needs over the weekend. On paper its balance sheet looks okay. But its board has concluded it needs a further cushion of capital, perhaps as much as 拢10bn.

This need not spook any depositor or saver with RBS. In fact the contrary is true. RBS will be all the stronger for strenthening its balance sheet and accessing the Treasury's interbank guarantee.

But it's a terrible humiliation for RBS's chief executive, Sir Fred Goodwin - who broke all British records by raising 拢12bn in a rights issue less than six months ago.

After the eyewatering fall in RBS's share price at the end of last week, RBS's entire market value is now less than the cash it raised just a few months ago. And in terms of what can damage the credibility of a chief executive, it doesn't get much worse than that

Goodwin has told colleagues that his priority is to raise the desirable new capital, and that he wouldn't stay in his job after that if shareholders wanted him to go.

That's his coded way of saying he's off, possibly as soon as Monday - and he'll be replaced by the former Abbey finance director, Stephen Hester, who is currently chief executive of British Land.

But, to be clear, RBS won't be the only bank raising capital in the next few days.

I expect HBOS, Lloyds TSB and Barclays to disclose that they're raising up to 拢25bn between them - all of it underwritten by us as taxpayers or simply given to them by us (aren't we generous?).

It won't be long before we know how much of the banking system belongs to us. Which means we'd better start thinking about what we want in return.

Some might say a return to old-fashioned, prudent, know-your-customer banking mightn't be such a terrible thing to ask for.

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