British watchdog attacks RBS ex-management over bank failure

12th December 2011, Comments 0 comments

Royal Bank of Scotland almost collapsed in 2008 due to poor management, particularly over the ill-fated ABN Amro takeover, and also weak regulation, Britain's financial watchdog said in a report on Monday.

The Financial Services Authority, seeking to address what went wrong in the run-up to the lender's vast £45.5-billion ($71-billion, 54-billion-euro) state bailout, said RBS had conducted "inadequate" due diligence into ABN Amro.

"The report concludes that RBS's failure amid the systemic crisis ultimately resulted from poor decisions made by the RBS management and board," the FSA said in its long-awaited findings.

"But deficiencies in the global capital regime and liquidity regulations made the crisis much more likely. In addition, flaws in the FSA's supervisory approach provided insufficient challenge to RBS."

Back in October 2008, the Edinburgh-based lender was slammed by the global financial crisis.

RBS, under the leadership of then-chief executive Fred Goodwin, was also ravaged by its leading role in the consortium takeover of Dutch giant ABN Amro at the top of the market in 2007.

The FSA singled out six central factors which contributed towards the failure of the bank, which is now 83-percent owned by the state.

RBS had a "significant" weakness in the group's capital position as a result of management decisions, and this situation was permitted by an "inadequate" global regulatory framework.

The lender had an "over-reliance" on risky short-term wholesale funding, and there were "concerns and uncertainties" over the quality of its underlying assets, according to the report.

RBS faced "substantial losses" in credit trading activities, as a result of the financial crisis.

The ABN Amro deal had meanwhile proceeded "without appropriate heed to the risks involved and with inadequate due diligence", the FSA said, adding that RBS had been "extremely vulnerable to failure" in a systemic crisis.

The FSA, seeking to prevent another such bailout, called for tighter regulation of takeovers.

It also urged new laws to ensure that top executives would be held accountable for bank failures, after confirming that no RBS directors would face enforcement action.

"Major bank acquisitions should in future, require explicit regulatory approval," the FSA concluded in the 452-page report.

It added that there should be a "public debate about changes to rules, laws or remuneration policies which would ensure that bank executives and directors face personal consequences as a result of bank failure."

In response to the findings, RBS praised the FSA for its detailed assessment and stressed that the group's new management was making "significant" headway in making the bank safer.

© 2011 AFP

0 Comments To This Article