Published: 12 Dec 2011
Last Updated: 20 Jun 2012
So it turns out the near-collapse of RBS was caused by ‘poor management decisions’ and failings in regulation. And there we were thinking it was all down to Dash the ghost dog. A report by Financial Services Authority chairman Lord Turner of Ecchinswell has concluded that the failure of the bank, which led to a £45bn bailout by the Government back in 2008, was due to a combination of bad management and a ‘weak’ FSA caused by Government pressure for ‘light-touch’ regulation. Lord Turner seems pretty keen to make sure those responsible pay – although aside from putting them in the naughty corner, there doesn’t seem to be much he can do.
To be fair to Turner, this report wasn’t really designed to raise eyebrows – it was really as more of a coup-de-grace, designed to justify the FSA’s (now very imminent) closure. Thus, his findings are underwhelming, pointing out that RBS had a weak capital position, was over-reliant on short-term funding and that there were ‘underlying deficiencies in management, governance and culture which made it prone to make poor decisions.’ For ‘it’, read ‘former CEO Sir Fred ‘the dread’ Goodwin and Johnny Cameron, then head of its investment bank’.
But Turner also admitted that his own organisation was at fault (although, at the time, it was led not by him but by its current CEO Hector Sants, who’s about to become the deputy governor of the Bank of England). The FSA ‘provided insufficient challenge’ to RBS when it decided to acquire failing Dutch bank ABN Amro ‘without appropriate heed to risks involved’. Liquidity regulation was also ‘totally inadequate’: so inadequate, in fact, that Turner reckons if Basel III capital requirements had been in place then, it wouldn’t have been able to make the acquisition – or pay out unreasonably high dividends. Although the report did add that this was all under the ‘backdrop of political pressures for a "light touch" regulatory regime’. So really, given he was chancellor at the time, it was Gordon Brown’s fault. Then again, what isn’t?
Now we know who’s at fault (although admittedly, we pretty much knew that in the week after the RBS bailout), what’s to be done? Er, not much, says Turner: rather embarrassingly, his hands are tied. ‘There is neither in the relevant law nor FSA rules a concept of "strict liability": the fact that a bank failed does not make its management or board automatically liable to sanctions,’ he said.
Not surprising, then, that he wants the laws changed to allow directors of banks that fail to be personally liable – thus ensuring they can be banned, fined and stripped of their remuneration packages. All of which the Government will take on board – although given that the FSA is set to be wound up during 2012, with its regulatory powers being transferred back to the Bank of England, any changes in law will be overseen by Mervyn King et al.
Despite his powerlessness, though, Turner does seem keen to see those responsible punished. For now, the only thing he can do is pass on his findings to the Department of Business, Innovation and Skills, which at least has the power to disqualify those deemed as responsible as directors. That said, BIS has already seen a secret report into the matter by PricewaterhouseCoopers, and didn’t take any action. We’ll have to hold tight to see whether the pressure of the public glare yields more of a response. Although judging by the fact that David Cameron has just put his neck on the line to keep the City sweet, don’t expect a revolution quite yet.
To be fair to Turner, this report wasn’t really designed to raise eyebrows – it was really as more of a coup-de-grace, designed to justify the FSA’s (now very imminent) closure. Thus, his findings are underwhelming, pointing out that RBS had a weak capital position, was over-reliant on short-term funding and that there were ‘underlying deficiencies in management, governance and culture which made it prone to make poor decisions.’ For ‘it’, read ‘former CEO Sir Fred ‘the dread’ Goodwin and Johnny Cameron, then head of its investment bank’.
But Turner also admitted that his own organisation was at fault (although, at the time, it was led not by him but by its current CEO Hector Sants, who’s about to become the deputy governor of the Bank of England). The FSA ‘provided insufficient challenge’ to RBS when it decided to acquire failing Dutch bank ABN Amro ‘without appropriate heed to risks involved’. Liquidity regulation was also ‘totally inadequate’: so inadequate, in fact, that Turner reckons if Basel III capital requirements had been in place then, it wouldn’t have been able to make the acquisition – or pay out unreasonably high dividends. Although the report did add that this was all under the ‘backdrop of political pressures for a "light touch" regulatory regime’. So really, given he was chancellor at the time, it was Gordon Brown’s fault. Then again, what isn’t?
Now we know who’s at fault (although admittedly, we pretty much knew that in the week after the RBS bailout), what’s to be done? Er, not much, says Turner: rather embarrassingly, his hands are tied. ‘There is neither in the relevant law nor FSA rules a concept of "strict liability": the fact that a bank failed does not make its management or board automatically liable to sanctions,’ he said.
Not surprising, then, that he wants the laws changed to allow directors of banks that fail to be personally liable – thus ensuring they can be banned, fined and stripped of their remuneration packages. All of which the Government will take on board – although given that the FSA is set to be wound up during 2012, with its regulatory powers being transferred back to the Bank of England, any changes in law will be overseen by Mervyn King et al.
Despite his powerlessness, though, Turner does seem keen to see those responsible punished. For now, the only thing he can do is pass on his findings to the Department of Business, Innovation and Skills, which at least has the power to disqualify those deemed as responsible as directors. That said, BIS has already seen a secret report into the matter by PricewaterhouseCoopers, and didn’t take any action. We’ll have to hold tight to see whether the pressure of the public glare yields more of a response. Although judging by the fact that David Cameron has just put his neck on the line to keep the City sweet, don’t expect a revolution quite yet.
