Q&A: Will RBS customers be affected?

The move by RBS is expected on Monday or Tuesday

Britain's second largest bank is expected to go to shareholders next week to ask for extra cash to improve its financial position.

It is one of the most significant moves from a UK bank during the credit crunch, but how will it affect customers?

Practically, it will not bring any changes for its customers. Here's why.

So what's going on?

Next week, the Royal Bank of Scotland is expected to go to its shareholders to ask for �10bn to shore up its financial position.

The so-called rights issue is set to be one of the biggest in corporate history.

It means RBS is expected to ask its shareholders - who benefited from the bank's profits - to buy more shares in the business.

BBC Business Editor Robert Peston described the move as a "new and important British phase in the credit-market turmoil that has been shaking the global economy since last summer".

The Bank of England has been pumping money into the banking system as a result of the credit crisis.

So the bank is in trouble then?

Not at all. It is not desperately short of capital and there is no huge liquidity problem, like there was at Northern Rock. It has enough money to finance its day-to-day activities, like financing mortgage lending.

Other banks could follow the predicted move by RBS

Put simply, it is going to its shareholders because it wants a fatter financial cushion to deal with the effects of the credit crunch.

It has also faced some cash reserve issues as a result of its leading role in last year's takeover of the Dutch bank ABN Amro, so it went into the credit crunch period in a slightly weaker position than other banks.

It is not a bail-out. It is not another Northern Rock.

I'm a customer at RBS, what does it mean for me?

Nothing.

None of your financial dealings with the bank will be affected. The same is true for any customers of NatWest, Ulster Bank and insurer Direct Line which are all owned by RBS.

"This is not a customer issue, it's a shareholder issue," said Justin Urquhart Stewart from Seven Investment Management.

The same will be true for the customers of other banks if, as many analysts believe, they do the same in the coming months.

But I'm a RBS shareholder, as well as a customer. What about me?

Well, you're a little different.

Again, your account will not be affected. Yet, if the move occurs next week you will be approached to buy more shares in the business.

In a typical rights issue, the shares are offered at a knock-down price. You don't need to take up the offer and you can decide to pass on the right to somebody else.

The financial effect will be felt on dividends as profits will be more thinly spread because more shares will exist.

Say you currently own 5% of RBS shares, then you'll be offered 5% of the new ones and will need to take them if you want to maintain your position.

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