RBS Nearly Collapsed Due To Poor Management And Labour's Regulatory Regime

Rbs

First Posted: 12/12/11 07:03 GMT Updated: 12/12/11 12:15 GMT   PA

Poor management decisions and the last Labour government's light-touch regulatory regime were key factors in the near-collapse of Royal Bank of Scotland, a long-awaited report by the City watchdog has said.

The Financial Services Authority (FSA) highlighted deficiencies in the management, governance and culture at RBS and said that the deal which effectively broke the bank - the £50 billion takeover of Dutch bank ABN Amro - was carried out with inadequate due diligence.

However, it also highlighted its own short-comings in the lead-up to the collapse, saying it operated a flawed supervisory approach which failed to challenge the management of RBS.

It added: "This approach reflected widely held, but mistaken assumptions about the stability of financial systems and existed against a backdrop of political pressures for a 'light touch' regulatory regime."

The FSA identified six key factors in the failure of RBS, most significantly its weak capital position and over-reliance on risky short-term funding in wholesale markets.

In terms of the ABN Amro acquisition, the FSA said RBS proceeded without appropriate heed to the risks involved and with due diligence from the Dutch bank that in April 2007 amounted to "two lever-arch folders and a CD".

The FSA said the seventh key factor in explaining the bank's demise was the management, led by chief executive Sir Fred Goodwin. It said: "The multiple poor decisions that RBS made suggest that there are likely to have been underlying deficiencies in RBS management, governance and culture which made it prone to make poor decisions."

The report includes a recommendation that banks should gain regulatory approval for significant acquisitions and asks whether bank directors should be forced to prove their innocence in the event of a future failure.

However, it confirms that the FSA does not intend to pursue any new enforcement action against any of RBS's former directors.

FSA chairman Adair Turner said: "The fact that no individual has been found legally responsible for the failure begs the question: if action cannot be taken under existing rules, should not the rules be changed for the future?"

UPDATE: Writing in the Telegraph newspaper on Monday, RBS chairman Sir Philip Hampton said that the "change programme at RBS has been huge" since 2008, but offered assurances that the bank would still take the report seriously.

He said: "The bank’s shareholders, employees, and the public were angry at the failure of RBS three years ago. If no action could be taken by the FSA to punish those who led the bank to a £45bn bailout, the public were going to have to see a full and formal reckoning of how that could be the case."

Hampton added that "today’s report is an important milestone" but concluded that RBS was now "getting on with the job of making the bank a success".

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Poor management decisions and the last Labour government's light-touch regulatory regime were key factors in the near-collapse of Royal Bank of Scotland, a long-awaited report by the City watchdog has...
Poor management decisions and the last Labour government's light-touch regulatory regime were key factors in the near-collapse of Royal Bank of Scotland, a long-awaited report by the City watchdog has...
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03:57 PM on 12/12/2011
Proper regulation is like the rules of the road.

Without them their are many needless accidents and some deaths.

Those that argue against regulation are either greedy or fools.
01:06 PM on 12/12/2011
So, bad management - they should be sued for the return of their performance bonuses (at least), pension pots should be forfeited and we should be looking very closely at the fitness of the Directors with a view to disqualifying them from holding office for a long time. Dream on, they've all had the cream and moved on and nobody will do anything about it. Rip off Britain in full flow.
12:19 PM on 12/12/2011
Bad management caused collapse - now there's a surprise. What else did anyone think it was: little green men from Mars?
karen1963yorks
My micro bio was empty. Good.
11:15 AM on 12/12/2011
So they will be paying back all th bonus payments?
11:12 AM on 12/12/2011
I am wondering WHY the USA Banks that had huge public cash injections have managed to PAY IT ALL BACK, but OUR Banks simply continue to accept PUBLIC CASH and other than the so called Bank Tax are paying back very little.
Perhaps the LAW should be that until the Publicly funded and owned Banks have repaid their debt, THEY ARE NOT ALLOWED BONUSES....surely if the money set aside for bonuses was paid to the State, the loan ratio would be reduced.The UK would owe very slightly LESS money and our interest payments could be marginally reduced allowing a small extra spending on areas of NEED within our budget, not bankers bonuses?
JUST A THOUGHT, probably very naive, but it seems logical to me.
11:28 AM on 12/12/2011
Couldn't agree more. How a company can afford to bay bonuses when it makes a loss is beyond comprehension. It means those bonuses are making the losses worse and to do that they are either robbing the investors or reducing reserves still further or both.

Bonuses must be made conditional on making an overall profit and should be limited to a small percentage of those profits. Anything else is obscene.
01:42 PM on 12/12/2011
Very naive
The bankers all have reasons why the bonus rewards should remain
and the Tories happily accept the reasons
11:09 AM on 12/12/2011
And just what is the favourite reason given to account for the high payouts to bankers? :-

"We need to pay the best money to attract the best person for the job"

What a load of complete and utter twaddle!
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Mickey Mouse 1
There are no lies or deceit on a chess board.
10:53 AM on 12/12/2011
I see that someone has started to listen to what I've been saying since the credit crunch came out of nowhere and whacked everyone over the head. Central bankers created a sea of cheap money which was lent to the unlendable and government regulators were not up to the job of regulating the banks.

What surprises me, in a compensation culture, is that no one has been brought to book for starting the credit crunch which very nearly destroyed the world's financial system.
12:34 PM on 12/12/2011
Not as I see it, Mickey, lending to the uncreditworthy I'll agree, but the sub-prime problem was merely a convenient smokescreen. the banks were buying, are still buying bits of paper issued by uncreditworthy governments to fund their lavish spending ambitions. Compared to government bonds the sub-prime market is a flea on the camel's back. The crunch came when the banks ran out of money, not because of sub-prime lending but because of lending to fund reckless spending, principally by Brown and Bush.
12:38 PM on 12/12/2011
My alternative explanation has just been rejected by HuffPost.
12:42 PM on 12/12/2011
Hey presto, there it is!
10:47 AM on 12/12/2011
They say the buck stops at the top. Then the FSA should be in the dock. They hand out fines but never pay for their own shortcomings.

Northern Rock; RBS and LLoyds/TSB. All victims of lack of control by the FSA.

Then they have the nerve to be a party to the nationalisation of BRADFORD & BINGLEY which was strongest. Please support the e-petition to return the shares to the rightful owners - thanks
karen1963yorks
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11:18 AM on 12/12/2011
Gordon Brown emasculated and declawed the FSA The Bankers bought him dinner and we got screwed.
karen1963yorks
My micro bio was empty. Good.
01:57 PM on 12/12/2011
Where is the petition? The bank put up a new Santander sign and my shares ceased to exist.
10:27 AM on 12/12/2011
What? Bad management - surely not! Couldn't have been unfettered greed and ambition by Fred the Shred and others could it - Nah - bad management! Then blame Labour.
karen1963yorks
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11:21 AM on 12/12/2011
Well if you prefert to blame the Tories then thats up to you. Just remind me again who was in power? Who was it that relaxed the banking laws? Who was first Minister of the treaeasury?
The headline blames both bad management and poor regulation
02:49 PM on 12/12/2011
Obviously your not too hot on irony. I wouldn't blame Labour or the Tories (although they have done nothing except tax us). The point is this crisis was and is driven by corporate greed which is still unfettered. Of course it was bad management - it doesn't take an enquiry to work that out! Oh, and I'm (or maybe was) a Tory!
10:04 AM on 12/12/2011
This totally failed bank was saved by Mr. 'No More Boom And Bust' Brown who started a worldwide epidemic of saving failed banks. Business as usual, the bankers had loads of taxpayers' money to play with and unsurprisingly have managed to fritter most of that money away. Anyone think we should bail them out again?
karen1963yorks
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11:22 AM on 12/12/2011
Not Bail, Jail
12:20 PM on 12/12/2011
You must credit him with ending boom - so he got it half right!
09:48 AM on 12/12/2011
her we go again the blame game labours soft touch .
well david cameron told us all we need the banks so they have a free hand to do as they like .
so its not going to get better .
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09:39 AM on 12/12/2011
The only way this will stop and the banks start to behave better is to jail the complete board of directors.
Then tell them just be glad they are not in China were they execute bankers for fraud.
The banksters are protect by the government because they contribute to the political party funds.
09:22 AM on 12/12/2011
One should also remember that BARCLAYS having examined the books declined to purchase Amro.
The deal was very much like the one G Brown enticed Lloyds TSB to purchase another bankrupt bank, Halifax .It was only after the deal was done that the understated mountain of debt and liabilities came to light.
09:13 AM on 12/12/2011
And just how much did this Nugget of info cost to glean?
In all honesty you could use the same words about the UK's current financial situation, but Labour would never agree. I am sure the bosses at RBS will say this revelation is wrong.
09:05 AM on 12/12/2011
Hang on - aren't or haven't the very horse's rectum bankers who got RBS in the deep and mild received huge bonuses or pay-offs?

I notice that Prudence Brown is (thankfully) extremely quiet these days having wrecked our economy in trying to save the world.

His epitaph should read '1 + 1 = 20'.
12:24 PM on 12/12/2011
The superannuated bachelor ditched Prudence to marry Sarah(?). Hell hath no fury like a Virtue scorned!