State-owned Royal Bank of Scotland has agreed to pay a hefty fine of £28.6m after admitting a charge of price-fixing brought by the Office of Fair Trading. Apparently it shared confidential information about loan pricing with rival Barclays between October 2007 and March 2008, a clear breach of competition law. There’s no question about RBS’s guilt – in fact, it 'fessed up to the whole thing, causing the OFT to trim £5m off the final fine. But what isn't instantly clear is: who benefits from the state taking £30m off a financially-struggling state-owned bank?
The OFT discovered that RBS had not only shared general information about its future pricing plans with Barclays, but also details of two specific loans – which Barclays was able to use to work out its own pricing. The timing’s significant: this was in the early days of the credit crunch, when the banks were desperately trying to work out what kind of risk premium they should be charging. Nonetheless, this kind of market manipulation is illegal; hence the fine. (Incidentally, if you’re wondering why Barclays hasn’t been fined too, it gets a free pass because it shopped RBS to the OFT soon after – thus getting all the benefit, and none of the downside, you might argue).
Apparently this information was shared both over the telephone and at various industry and social events. Now old-schoolers may argue that there’s absolutely nothing new going on here; competitors have always swapped information informally about their pricing and strategy, and they’ll no doubt continue to do so. That doesn’t make it legal, and it doesn’t make it right. But it does mean that there’ll be quite a few people looking at this RBS case and thinking that it could easily have been them.
The bigger question, however, is whether a whopping great fine is the right punishment in this case. Even privately-owned banks don’t really suffer from fines like these – they usually just pass it on to customers in the form of higher fees and charges (the last thing we need at the moment). But RBS is a Government-owned bank propped up with Government money; is there really any point using some of this money to pay a fine to a different Government department? It’s just robbing Peter to pay Paul.
On the other hand, perhaps it’s a question of precedent. After all, the last thing the Government wants is for RBS to look like it's above the law...
In today's bulletin:
Darling celebrates faster recovery after dreary debate
OFT slaps RBS with £29m competition law fine (why?)
Thorley calls time after nine years at the bar
Lack of graduate jobs threatens 'disillusioned generation'
Psychology at Work: Strikes, and the psychological contract