Bloomberg News

RBS Examined for Overstating Cash Held Before Crisis, FSA Says

December 12, 2011

Dec. 12 (Bloomberg) -- Royal Bank of Scotland Group Plc was investigated by the Financial Services Authority before its bailout after wrongly telling regulators it held more cash to cover client withdrawals than the required minimum.

RBS overstated its Sterling Stock Liquidity Ratio, a measure of a bank’s ability to withstand customer withdrawals without access to wholesale funding, between March 2006 and July 2007, the FSA said in a report today into the bank’s near collapse. RBS’s ratio averaged 69 percent, below the 100 percent minimum, the FSA said.

RBS told the FSA and the Bank of England on July 9, 2007, that it had incorrectly reported non-sterling assets as sterling holdings and that it “did not impact RBS’s overall liquidity,” the FSA said. The regulator accepted RBS’s assurances it would fix the underlying reasons for the misreporting. The FSA’s supervisory team contacted RBS in August 2007 to remind the bank of the importance of accurate regulatory reporting and to seek assurances on how the bank would avoid such mistakes in future. The FSA could find no evidence that the bank had addressed these weaknesses in its internal controls, though noted that RBS had returned to the minimum of 100 percent by July 17.

RBS was bailed out in 2008 following its takeover of ABN Amro Holding NV, and needed a 45.5 billion-pound ($70.75 billion) capital injection from taxpayers. The bank went on to report a 24.1 billion-pound loss for 2008, the largest in U.K. corporate history. The FSA provided a flawed supervisory approach that failed to adequately challenge the judgments and risk assessments of the RBS management, the report said.

A spokesman for Edinburgh-based RBS declined to comment.

Today’s report blames RBS’s collapse in part on a liquidity run, where lenders to the bank became increasingly unwilling to roll over their funding commitments. That, in turn, had its roots in uncertainty about whether the bank had sufficient capital to absorb losses. The lack of confidence saw the bank lose 19 billion pounds of deposits between August and October in 2008, the FSA said.

--Editors: Jon Menon, Edward Evans

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net


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