Bloomberg News

Taxpayers Have Right to Be ‘Furious’ Over FSA Oversight of RBS

December 12, 2011

Dec. 12 (Bloomberg) -- U.K. taxpayers “had a right to be absolutely furious” with regulators over their supervision of Royal Bank of Scotland Group Plc before its near collapse in 2008, the Financial Services Authority’s chairman said today.

Regulators missed problems with the bank’s liquidity in the months before the 2008 financial crisis and allowed the bank to operate with a capital ratio of one-quarter of current minimums. The FSA had fewer than five team members devoted to supervising RBS in October 2007, a year before its bailout, the watchdog said in a report today.

“One of the flaws with the supervisory system at that time was that the resource devoted to supervising systemically important firms was very light,” FSA Chairman Adair Turner told reporters in London today.

RBS reported a 24.1 billion-pound ($37 billion) loss for 2008, the largest in U.K. corporate history, and required a 45.5 billion-pound taxpayer rescue, the world’s biggest banking bailout, after the acquisition of Dutch bank ABN Amro Holding NV. The FSA, which will be split up next year, came under pressure from lawmakers to publish the probe into RBS finances after it cleared former RBS Chief Executive Officer Fred Goodwin and others of wrongdoing.

‘Deeply Irresponsible’

“Today’s report by the FSA into the failures at RBS makes it clear that ‘ultimate responsibility for poor decisions must lie with the firm’ but also that the regulators didn’t do enough,” Labour Party lawmaker Chris Leslie said in an e-mailed statement. “It is astonishing that deeply irresponsible decisions by these bankers could have forced a 45 billion-pound bailout necessary to save depositors, and yet no enforcement action is brought, and nobody is punished for this.”

In response to a reporter’s question today, Turner said it wasn’t fair that Goodwin faced no sanctions for his role in the bank’s downfall.

On the staffing issue, in 2005, the FSA’s then chairman, Callum McCarthy, wrote to former U.K. Prime Minister Tony Blair “assuring him that the FSA applied to the supervision of its largest banks only a fraction of the resource applied by U.S. regulators to banks of equivalent size and importance,” according to the report.

The FSA has since boosted the number employees supervising the bank to 23 people.

The regulator “isn’t convinced you have to go to 60, 80 or 100 people,” Turner said. “The crucial thing to say is that no one really knows across the world the optimum level.”

Gets Off ‘Lightly’

“The FSA gets off relatively lightly, and the auditors to the company even more so,” Roger Lawson, chairman of the U.K. Individual Shareholders Society, said in an e-mailed statement.

Lawmakers from the U.K. Treasury Select Committee pushed the supervisor to publish more information after the FSA cleared Goodwin last year.

The regulator was reluctant to release a full study into why it didn’t prosecute individuals involved in the bank’s failure. The FSA said it was prevented by law from releasing information gathered as part of a regulatory investigation.

“The public was being brushed off with a single page of explanation from the FSA about the failure of RBS in exchange for the billions of pounds taxpayers put at risk to save the bank from collapse,” Andrew Tyrie, chairman of the Treasury Select committee, said in an e-mailed statement today. “This was unacceptable.”

RBS relied too much on short-term wholesale funding, a weakness that was missed by the U.K. banking regulator, FSA said in the report. The watchdog listed seven reasons for the bank’s failure, including uncertainties over the quality of the lender’s assets and lack of capital.

Goodwin pushed through the world’s biggest bank takeover, the 72 billion-euro ($96 billion) purchase of Amsterdam-based ABN Amro with partners Banco Santander SA of Spain and Belgium’s Fortis even after global money markets froze in 2007. The acquisition saddled RBS with bad debt and depleted its cash reserves.

“Broadly speaking the FSA did far too little in relation to the ABN Amro deal before it went public on July 25, 2007,” Turner said.

--Editors: Anthony Aarons, Peter Chapman

To contact the reporters on this story: Ben Moshinsky in London at bmoshinsky@bloomberg.net;

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


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