The Financial Services Authority has released its report into the near collapse of the Royal Bank of Scotland in 2008.
The report finds that a combination of poor management decisions, inadequate monitoring by the FSA and the global systemic banking crisis, contributed to the bank’s failure.
It highlights a number of key factors which led to the government having to prop up the bank with £45 billion of UK taxpayers’ money:
Poor management decisions led to weaknesses in the bank’s capital position, which went unchecked due to inadequacies in the global regulatory capital framework.
RBS was over-reliant on high-risk, short-term wholesale funding, which was permitted by an inadequate approach to the regulation of liquidity.
The FSA failed to analyse concerns about the bank’s underlying asset quality.
Substantial losses in credit trading activities eroded market confidence and both the bank and the FSA were unaware of the extent of the losses.
There was a systemic crisis in the banking system, and RBS was in a relatively weak position, making it vulnerable to failure.
There was “inadequate due diligence” over the £50 billion acquisition of Dutch bank ABN AMRO, making the takeover a high-risk ‘gamble’.
It was revealed that the FSA had been concerned about the “assertive and robust” management style of RBS’s chief executive, Sir Fred Goodwin, since 2003.
The ABN AMRO takeover was part of his aggressive expansion strategy.
In the report the chairman of the FSA, Adair Turner, says: “The crucial issue that this raises, however, is whether the rules are appropriate: whether the decisions and actions which led to failure should ideally have been sanctionable, and whether we should put in place different rules and standards for the future”.
He suggests a number of reforms may be necessary, including regulatory approval being required for all major bank acquisitions.
He also suggests that its might be necessary to ban senior executives and directors of failed banks from taking up positions of responsibility in the financial services industry in the future, or that they forfeit a significant proportion of pay if a bank collapses.
Business Secretary Vince Cable is seeking legal advice over whether any directors should face disqualification proceedings as a result of the findings of the report.