Well, it is a bold plan all right.

RBS has made the biggest loss in British corporate history. In fact, it thrashed the previous record. As you no doubt know, or if you don’t you will be hearing it on the news for the rest of the day, its former boss Sir Fred Goodwin seems to be getting a pension worth £650,000 a year. Although this publication has argued the venon aimed at the bankers is over done, it is pretty hard to see Sir Fred’s pension in anything other than terms which would fill a swear box in record time. More of that in a few paragraphs.

This morning has also seen the unravelling of the latest wheeze from the goverment to save a bank, and this time it really is interesting.

So, RBS lost £25bn last year. Throw interest and other charges into the kitty, and the pre tax loss was £40bn. That was quite an achievement for a bank which made a £9.8bn pre tax profit in 2007, at the height of the boom.

After goodwill write downs, pre tax losses came in at £8.13bn.

The bank had already enjoyed a £20bn bail out, and under the terms announced this morning could receive a further £25bn.

You know how if you have a car accident, before you can claim from your insurance company you normally have to pay an excess. Well, RBS has entered into a similar deal, but in this case for the insurance of £300bn worth of toxic debt. It’s referred to rather snappily as the Asset Protection Scheme.

In this case, RBS’s excess, or at least it works like excess, is £19.5bn. It will also be paying a hefty premium for availing itself of this scheme, setting the bank back £6.5bn.

At face value then, it’s tough terms. It is just that the government is providing RBS with the money to cover these costs and potential costs. So it’s a bit like borrowing the money from your insurance company to pay for the insurance and any excess you might have to pay.

It seems that, eventually, the government will receive a 75 per cent stake in the bank. In order to protect existing shareholders, and to avoid the government effectively owning the bank outright, some of the money it provides will be exchanged for non voting shares.

But don’t get too caught up in that. The government will comfortably be the dominant shareholder, and will be able to call the shots. And if the bank does finally recover, and is then privatized, the exchequer will net a tidy windfall.

In return for all this money, RBS has agreed to provide £25bn of extra lending.

This is an important development. Maybe at last we are seeing potential losses out in the open, and because toxic waste comes with this insurance, the bank will be able to start lending again. It is schemes of this type that were missing from Japan during its collapse.

It is believed that the Lloyds Banking Group will be making use of a similar scheme, and which will be revealed soon.

As for Sir Fred’s pension, we would like to make this comment.

High rewards for risk are fine, providing the people involved are really taking risks.

The only true risk takers are entrepreneurs, people who put their own money and time on the line.

For too long, entrepreneurs have not been given the credit they deserve.

In fact, the system for rewarding bankers meant these people were in effect almost the polar opposites of entrepreneurs.

The real crime is that bankers who had no idea what true entrepreneurism was, were making life and death decisions in burgeoning British companies.

© Investment & Business News 2013