Belfast Telegraph

FSA report highlights RBS flaws

By Graeme Evans

Poor management decisions and the last Labour government's light-touch regulatory regime were key factors in the near-collapse of Royal Bank of Scotland, a Financial Services Authority (FSA) report has found.

The FSA report highlighted deficiencies in the management, governance and culture at Ulster Bank parent RBS and said that the deal which effectively broke the bank - the £50bn takeover of Dutch bank ABN Amro - was carried out with inadequate due diligence.

However, it also highlighted its own short-comings in the lead-up to the collapse, saying it operated a flawed supervisory approach which failed to challenge the management of RBS.

It added: "This approach reflected widely held, but mistaken assumptions about the stability of financial systems and existed against a backdrop of political pressures for a 'light touch' regulatory regime."

The FSA identified six key factors in the failure of RBS, most significantly its weak capital position and over-reliance on risky short-term funding in wholesale markets.

In terms of the ABN Amro acquisition, the FSA said RBS proceeded without appropriate heed to the risks involved and with due diligence from the Dutch bank that in April 2007 amounted to "two lever-arch folders and a CD".

The FSA said the seventh key factor in explaining the bank's demise was the management, led by Sir Fred Goodwin.

It said: "The multiple poor decisions that RBS made suggest that there are likely to have been underlying deficiencies in RBS management, governance and culture which made it prone to make poor decisions."

Yesterday's report includes a recommendation that banks should gain regulatory approval for significant acquisitions.

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