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Treasury disagreed with regulator decision on Co-op deal Treasury disagreed with regulator decision on Co-op deal
(35 minutes later)
The Treasury disagreed with the Financial Services Authority (FSA) over a rule that could have blocked Co-op Bank's takeover of 632 Lloyds branches, the BBC's Newsnight has learned.The Treasury disagreed with the Financial Services Authority (FSA) over a rule that could have blocked Co-op Bank's takeover of 632 Lloyds branches, the BBC's Newsnight has learned.
Co-op Bank's size meant its parent company should have been regulated like a bank under EU rules.Co-op Bank's size meant its parent company should have been regulated like a bank under EU rules.
The FSA in 2012 wanted the rule to apply, but the Co-op said it would mean that the deal could not go ahead.The FSA in 2012 wanted the rule to apply, but the Co-op said it would mean that the deal could not go ahead.
But he Treasury argued that the rule should not apply. But the Treasury argued that the rule should not apply.
The rule would mean authorities could direct Co-op to raise new capital, to reorganize the financial business, and to recruit a new board. These rules were at odds with the organisation's democratic ethos.The rule would mean authorities could direct Co-op to raise new capital, to reorganize the financial business, and to recruit a new board. These rules were at odds with the organisation's democratic ethos.
The extra regulation could have meant its other businesses shouldering any bank losses.The extra regulation could have meant its other businesses shouldering any bank losses.
The FSA clashed with the Treasury in March 2012, and the Co-op warned members it may not go ahead and do the deal it had been working on for a year.The FSA clashed with the Treasury in March 2012, and the Co-op warned members it may not go ahead and do the deal it had been working on for a year.
But the waiver was approved by top bank regulator Andrew Bailey in June that year, and within weeks the deal was back on.But the waiver was approved by top bank regulator Andrew Bailey in June that year, and within weeks the deal was back on.
The EU rules were brought in to ensure that companies owning a bank took on more responsibility.The EU rules were brought in to ensure that companies owning a bank took on more responsibility.
Paul Flowers, the bank's former chairman, told Newsnight last week the Treasury "wanted" the Lloyds deal to go ahead.Paul Flowers, the bank's former chairman, told Newsnight last week the Treasury "wanted" the Lloyds deal to go ahead.
The Co-op proceeded with the bid before being forced to abandon it because of a £1.5bn capital black hole.The Co-op proceeded with the bid before being forced to abandon it because of a £1.5bn capital black hole.
The regulatory exception later allowed the Co-Op to avoid having to rescue its bank on its own, instead asking bondholders to swap their bonds for shares.The regulatory exception later allowed the Co-Op to avoid having to rescue its bank on its own, instead asking bondholders to swap their bonds for shares.
The Lloyds branches became TSB, and will be sold to investors in a share sale.The Lloyds branches became TSB, and will be sold to investors in a share sale.