Cross-bencher Lord Cromwell to oversee RBS state aid deal

The Treasury is lining up a crossbench peer to oversee an £800m handout of‎ funds aimed at removing another obstacle to the reprivatisation of taxpayers' stake in Royal Bank of Scotland (LSE: RBS.L - news) (RBS).

Sky News has learnt that Lord Cromwell‎, a former executive at Barclays (LSE: BARC.L - news) ' wealth arm and Brewin Dolphin (Other OTC: BDNHF - news) , is close to being named as the chair of a new independent body that will supervise the distribution of the money.

Sources said an announcement could be made about Lord Cromwell's appointment by ministers as soon as this week.

The ‎news will mark a vital step towards RBS's ability to discharge its remaining state aid obligations imposed by Brussels in return for the bank's £45.5bn bailout during the 2008 financial crisis.

RBS, which announced its first annual profit in a decade last week, is unable to resume paying dividends to shareholders - the largest of which is the UK Government - until its state aid commitments are met.

Under its previous chief executive, Stephen Hester, and current boss Ross McEwan, RBS planned to carve out hundreds of branches and tens of billions of pounds in assets to sell to a rival in an effort to bolster competition in UK business banking.

Originally launched seven years ago, RBS held talks with Santander UK (LSE: 44RS.L - news) , Virgin Money and CYBG (Frankfurt: 30712270.F - news) - the owner of the Clydesdale and Yorkshire banks - about a potential deal, while it also spent years trying to establish the business as a standalone bank called Williams & Glyn.

However, both the standalone project and talks with Santander UK broke down over the technical complexity of a sale.

Last summer, RBS secured approval from the European Commission to abandon the plan and instead spend £700m to help established and challenger banks increase their market share.

A further £100m would also be spent by RBS to cover various costs associated with the scheme.

The money will be split between a £425m Capability and Innovation Fund‎ to be administered by the new independent body, and a £275m pot for rivals to incentivise SME customers to switch their accounts from RBS.

The revised plan has drawn criticism from some banks for failing to go far enough to reduce RBS's market share, with‎ The Times reporting last October that challengers were furious that Santander UK could be a beneficiary of the programme.

If his appointment is confirmed, Lord Cromwell is expected to head a three-person panel overseeing the distribution of the two funds.

According to Treasury guidance published last year, the new body will be independent of both RBS and the Government "with neither...having ownership or control rights over the independent body".

An independent monitor will in turn oversee the performance of the independent body, according to the Treasury, which declined to comment on Monday evening.

RBS has long since met most of its other state aid commitments, which included the disposal of businesses such as Worldpay, the payments technology group, and Sempra, a commodities trading venture, for what critics have argued were knockdown prices.

The other big obstacle to a continuation of the Treasury selling more of taxpayers' 71% stake in the bank is a long-awaited multibillion pound settlement with the Department of Justice over the mis-selling of mortgage-backed securities before the 2008 crisis.