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Start repaying the most troublesome loan amounts.
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In an effort to get lending flowing to businesses, King said a "bad" bank could house all the troublesome loans.
That gives the banks some scope to roll over troublesome loans that may be repaid at a later date, or written off at a more convenient time.
Royal Bank of Scotland's new capital resolution division (RCR) will contain £38bn of the bailed-out bank's most troublesome loans.
King backs full nationalisation, which would allow RBS to be split into two: into a "bad bank" of troublesome loans and "good bank" that can make fresh loans to cash-strapped businesses.
Instead, about £38bn of troublesome loans – including £9bn from Ulster Bank – will be placed into a new non-core division to be known as the capital resolution division, which the bank aims to wind down in three years.
But Sir Mervyn King, the Bank of England governor, claimed on Monday that "nothing had been achieved" and that RBS should be split into a "bad bank" to hold the troublesome loans and a "good bank" that could start lending more.
Lloyds is 43%-owned by the taxpayer, although that figure may rise above 50% if the bank is unsuccessful in renegotiating the terms of insuring £260bn of its most troublesome loans through the government's asset protection scheme.
Earlier this month RBS admitted it was holding more capital and putting £38bn of its most troublesome loans into an internal bad bank after a review commissioned by George Osborne ruled out a full-blown standalone bad bank.
This was the bank that had concocted a wheeze to take its most troublesome loans off its balance sheet and spin them into Protium, a Caymans-based venture that is now being closed down.
It was split in two in September 2008, when the Treasury rescued about £40bn of its troublesome loans and the UK arm of Spanish bank Santander took over its branches and savings customers.
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