Bloomberg News

Basel Capital Rules Would Have Saved RBS, FSA’s Turner Says

June 23, 2011

(Updates with Turner’s comments in second paragraph.)

June 23 (Bloomberg) -- Global plans to force the biggest banks to hold more capital may have saved Royal Bank of Scotland Group Plc from financial ruin, a top U.K banking regulator said today.

RBS “would be in a completely different position” if the lender had been subject to proposed rules requiring banks to hold more high-quality capital before its near-collapse in 2008, Adair Turner, chairman of the U.K.’s Financial Services Authority, told reporters in London today.

The Basel Committee on Banking Supervision meets in the Swiss city today to discuss how much extra capital the world’s largest and most systemically important banks will be forced to hold to avert another financial crisis. About 25 banks may have to hold more than the 7 percent core Tier 1 capital required by the Basel rules, according to Morgan Stanley analysts. RBS and HSBC Holdings Plc and Citigroup Inc. are among banks facing the highest levy of about 2.5 percent, Morgan Stanley said.

Turner said a report into the 45.5 billion-pound ($73 billion) bailout of RBS would show that the FSA had devoted “insufficient resources to large, systemically important banks.”

Proposals to force large banks to hold more capital are “a major step forward in securing global financial stability,” Turner said. The report on RBS will detail how the FSA “allowed banks to operate with far too little capital.”

The Basel group is yet to agree on all the outstanding issues of the capital surcharge plans, Turner said. Remaining questions include how banks must assess the riskiness of their assets for the purposes of calculating the fee, he said.

Largest Loss

RBS posted the largest loss in U.K. corporate history in 2008 and required a bailout following its acquisition of ABN Amro Holding NV.

The FSA’s report on RBS will include an account of the sequence of events that led to the bank’s financial difficulties, an explanation of why the FSA didn’t bring an enforcement action against any RBS employees and finally a description of failures at the watchdog.

The regulator will “produce a most open, self-critical report,” Turner said.

The FSA came under pressure from U.K lawmakers to publish the findings of its probe into RBS’s finances after the regulator cleared former RBS Chief Executive Officer Fred Goodwin and other officials of wrongdoing.

Lawmakers last month said that the report may not satisfy public demand for answers because of confidentiality rules.

Members of parliament must specify a “proper sequence of timing” for releasing regulatory reports, Hector Sants, FSA chief executive, told reporters.

--Editors: Peter Chapman, Steve Bailey

To contact the reporter on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net


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