Tuesday, 13 December 2011
'Poor decisions' led to £45bn RBS collapse, says feeble FSA report
Monday 12 December 2011
by Rory MacKinnon, Corporate Affairs Reporter
Financial watchdog chief Lord Turner stated the bleeding obvious today in a 452-page report on Royal Bank of Scotland's failure which said "poor decisions" were to blame.
Political economists rained down ire on the Financial Services Authority chairman's "pathetic" findings after a year-long investigation into the 2009 collapse.
Lord Turner pinpointed "multiple poor decisions" by directors which ultimately ended up with the bank needing a £45 billion bailout from taxpayers to fend off closure.
Failures included aggressive expansion with "inadequate due diligence," such as the 2007 takeover of Dutch high street bank ABN Amro, and dangerously low levels of capital permitted under "light-touch" regulation.
He said that the bank had suffered from an over-reliance on high-risk, short-term funding and had made substantial losses in credit trading which were underestimated by both the bank itself and regulators.
The FSA chief also blamed the "systemic crisis" the world over.
But Lord Turner only briefly touched on "underlying deficiencies in RBS management" that made it "prone to make poor decisions."
And he justified the failure of the FSA to spot the spiralling crisis as a side effect of it working "against a backdrop of political pressures for a 'light touch' regulatory regime."
Left-wing commentators were left unimpressed.
University of Wolverhampton Professor Roger Seifert dismissed the report as "pathetic."
Regulators' own lack of skill and technical expertise "was never the issue - it was a complete lack of political will," he said.
"It was not a minor failure or lack of skills and technical expertise.
"It was a failure at the heart of the liberal government."
Left Economics Advisory Panel's Andrew Fisher said the findings underlined the need for the government to take the banking system into taxpayer hands.
"The failure of RBS was due to a regime sanctioned by successive governments that instituted banks as the dynamic driving force of the economy rather than as safe depositories," he said.
"The banks and wider finance sector manage our money, our mortgages, our pensions.
"Their existence is essential for our day-to-day lives, our homes and our futures.
"This is a systematic failure to which the only sustainable solution is public ownership and control."
And Tax Justice Network economist Richard Murphy said: "Regulating better a structure that is inherently flawed will never give us the right answer.
"Reforming the system as whole is the only way forward now - and this is the elephant that dared not trumpet in this report."