Vince Cable sends report on RBS conduct to watchdogs
Business Secretary Vince Cable has referred a report about how RBS dealt with small business to City regulators.
RBS put some "good and viable" businesses into default so it could make more profit, it is claimed in a report by government adviser Lawrence Tomlinson released on Monday.
The findings have been sent to the Financial Conduct Authority and the Prudential Regulation Authority.
RBS said it was already committed to an investigation into customer treatment.
The allegations centre on the bank's Global Restructuring Group (GRG) lending division, which specialises in handling loans seen as being more risky.
The Tomlinson report says that putting a business into the GRG generates revenue for the bank through fees, increased profit margins and the purchase of devalued assets by their property division, West Register.
The practice of removing a bad debt from a bank's books is not an unreasonable one, particularly as major lenders have been trying to move away from riskier assets.
But Mr Tomlinson told the BBC that there is a perception among small businesses that they are being "purposefully distressed" in order to get them into the GRG, which even if wrong, should be addressed by RBS.
Mr Tomlinson acted independently of government in producing the report, and did not set out to look solely at RBS.
But he said what he had uncovered through talking to businesses had put RBS and its GRG into focus.
He also said conversations with affected businesses had made a big impact on him.
"I feel really sick sometimes. It is really disturbing," he said.
"It is ruining people's businesses for sure, and in some cases having a huge impact on their personal lives too, even leading to family breakdown."
The bank said in a statement: "In the boom years leading up to the financial crisis, the over-heated property development market became a major threat to the UK economy.
"RBS did more than its fair share to fuel this and commercial property lending was one of the key drivers of our near collapse as valuations rapidly plummeted.
"Facing up to these mistakes has been a difficult, but essential part of making RBS a safe and strong bank once again."
Mr Cable said: "Some of these allegations are very serious and I am waiting for an urgent response as to what actions have been taken.
"I am however confident that the new management of RBS is aware of this history and is determined to turn RBS into a bank that will support the growth of small and medium sized businesses."
The shadow business secretary, Chuka Umunna, said: "The claims made by Lawrence Tomlinson against RBS' Global Restructuring Group are extremely serious indeed.
"To artificially distress otherwise successful businesses in order to seize their assets and profit would be utterly scandalous and deplorable. It's right that the FCA [Financial Conduct Authority] and PRA [Prudential Regulation Authority] look into the claims as a matter of urgency."
BBC business correspondent Joe Lynam says that if it is shown that RBS deliberately put viable companies out of business, it could open the bank to extensive legal action.
The 81% state-owned bank's report into its own lending practices to small and medium sized companies by the former Bank of England deputy Governor Sir Andrew Large will also be published on Monday.
RBS's new chief executive Ross McEwan has already said this report will make for uncomfortable reading, but promised to implement its findings in full.