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LONDON (Reuters) - The Royal Bank of Scotland is "in limbo" and should have been fully nationalised when it was rescued in the financial crisis, Business Secretary Vince Cable said on Wednesday.
Instead, the present government was saddled with the "worst of all worlds - responsibility without control" of a bank bailed out with 45 billion pounds of state money, Cable said in advance extracts of a speech released by his office.
Cable, due to make the remarks at a London event, was expressing his exasperation at RBS, 82-percent owned by the state but independent of ministerial control under the governance structure managing the state's investment.
"(Former Chancellor) Nigel Lawson argues that it should be nationalised. It should have been," he said.
His Liberal Democrat party has proposed distributing the government's shareholding to voters, a plan that Cable said should be re-examined.
The public would benefit from the eventual recovery in the RBS share price "while professional managers run the bank with a long-term mandate", he said.
"We must work on the details so that there can be a proper, informed debate on how this legacy of the banking crisis is to be taken forward."
Controversies over executive bonus payments and the level of lending to loan-starved small businesses have dogged the government's dealings with the bank, which Cable said was "in limbo as a ... taxpayer-owned institution semi-detached from government."
The relationship is set to be strained further later on Wednesday when RBS is expected to be fined between 400 million and 500 million pounds by British and U.S. authorities for its part in a global scandal over the rigging of the Libor interest rate.
Cable, whose Liberal Democrats have ruled in coalition with the larger Conservatives since 2010, said early hopes for a re-privatisation of RBS now looked "a distant dream", unless for an unacceptable loss, given the depressed level of its shares.
"Recapitalisation may be the best solution but it is currently impractical; full nationalisation would cost the taxpayer billions and, except in a new financial emergency, this is unlikely to take precedence over other claims on spending," he said.
Cable, disappointed with the level of lending by RBS and Britain's other big banks to smaller firms (SMEs), said he had written to banks demanding more details of their loan books and would legislate if the lenders did not cooperate.
He said he wanted figures on "gross and net lending to SMEs, and overall lending, disaggregated to institution, branch and - preferably - constituency or postcode level."
In addition, Cable said he had asked the Bank of England to investigate why its Funding for Lending scheme, which reduces the cost of capital to banks in return for increasing lending, was not benefiting as many small companies as hoped.
Reporting by Tim Castle; Editing by James Dalgleish