/ Money

We need bigger penalties for top bankers

RBS sign

In perhaps the understatement of the year, the headlines about the FSA’s report into the failure of RBS said that it was caused by ‘multiple poor decisions’. So should bankers be held accountable when they fail?

Well, the Financial Services Authority (FSA) report was launched today and says that senior executives didn’t understand the risks they were taking and were focused on growing the business at all costs. The board of directors did not do enough to challenge the decisions of senior executives.

Just when they should have been more cautious, executives embarked on the largest takeover in banking history by purchasing ABN Amro, even though they had only done ‘limited’ investigations into the overall health of the bank.

RBS based its decision on access to ‘two lever arch folders and a CD’ about the bank.

The FSA goes on to admit that there were failings in its old methods. It says it previously focused too much on box ticking and even said that in 2006 and 2007 it had ruled that RBS was a ‘well-managed’ firm and would benefit from less scrutiny. All of this was encouraged by politicians who called for a ‘light-touch’ approach to regulation.

Taxpayers paying the price

Taxpayers are bearing the consequences of these decisions. As of today, we are sitting on a loss of £26 billion from our stake in RBS. Whilst senior executives were handsomely rewarded, taxpayers have ended up guaranteeing RBS on losses it made trading complex derivatives and on loans to hedge funds based in the Cayman Islands.

However, no individual RBS executive will be subject to disciplinary action for these decisions. While the regulator concluded that executives had fallen short of best practice, their actions were not unreasonable.

Hold banks to account

Today’s report suggests that in the future there should be greater opportunity for the regulator to take action against senior banking executives for failure, something our Chief Executive, Peter Vicary-Smith picks up on:

‘The FSA report is a damning document. It reveals the inherent flaws in a corporate culture that focuses on bonuses and short-term profits. The Chancellor must confirm he will take tough action to protect consumers when he publishes his response to the Independent Commission on Banking next week.’

The report also suggests that automatic bans should be handed out to failed banking executives and a greater proportion of their bonuses should be subject to clawback if the bank subsequently performs poorly.

Should we make it easier to hold senior management to account for failing banks? Would senior executives at RBS have taken a more cautious approach if they knew they would be subject to enforcement action if the bank collapsed?

Brenda Hayhoe says:
18 December 2011

Yes the bank was mismanaged by the Chairman and Directors, yes it has left it in a mess. You should feel sorry however for thebanking staff who just carried out their normal daily work as a humble employee, for they have also lost in this mess. When I was employed by them part of your salary was in shares that were kept for retirement, obviously now they are worthless meaning your pension pot has suffered greatly through no fault of their own. What I would like to know is who made and is still making money!!!!!! They basically robbed us , but throughout all this I am still staying with them as they are still a much better bet that whats on offer Santander.

graham says:
18 December 2011

So the inept greed/incompetence and down right mismangement of shareholder funds has not affected the boards finacially….just the workers.
Morally it sucks.
its glory and wealth for the suits
poverty and unemployment for the workers.
Lean times for shareholders.
Yet still mp’s wont tackle the city culture.
I see vince cable is on tv today saying they will implement the recommendations….eventually!!!!! too little too late.
As for boris and his pleas to save the “temples” of wealth as “they make £35 billiona year for London”…..well words fail me!!!!!!
Brenda i sympathise with you and all your fellow employees who lost out.

Why would we want to add bigger penalties which will only be passed down to us. Far better to change behaviour not by incentive but by reasonable yet challenging requirements.

20 December 2011

As RBS is almot owned by the UK taxpayer and we are in need of a Bank to give help for industrial regeneration- Should we not use part of the RBS bank for this purpose ??

Rob Adsley says:
22 December 2011

The reason that RBS got into so much difficulty is very simple……….Barclays wanted to buy out ABN Amro in order to become one of the biggest banks in the world. They had virtually clinched the deal, but RBS had decided that they would beat Barclays offer no matter what, as they wanted to be the biggest. RBS won the bidding battle, but failed in due diligance because of their determination to buy out AMN Amro. The result we all know….as a result of mortgage securitisation ABN Amro wasn’t worth the paper it was written on which effectively bankrupted RBS.

graham says:
23 December 2011

hi rob
i am sure you are right…So if theses directors at RBS are the greatest talents as the city would have us believe then they run the business without any due diligence and that to my mind makes them answerable to the shareholders and civil action…but nothing will happen will it. this whole city/state linkage stinks to high heaven. I am not anti caplitalist but when the banks arent properly managed, the hedge funds add no value to the planet,the civil service is edging towards incompetence(HMRC/MOD etc), MP’s still havent got the message, something has to change radically.Time for people power.So gets your tents out and get out to St. Pauls

PC, Orpington says:
27 December 2011

The fault is, at least, two fold.
1) The F.S.A and the Bank of England plus any other body did NOT condem the take over of Amro-Algy Bank. This was after Barclays had decided not to continue in the persuit. All the financial press thought the purchase was wrong or far too expensive. Algy knew they had very little future as they had put themselves up for sale.

2) Goodwin was on a simple ego tip and wanted RBS to be the biggest Bank in the world and his judgement was completely wrong, and, many independant pundits thought that too. It would seem that the RBS, main board, are also to blame for his self importance and bad judgement.

Ray Ford says:
27 December 2011

Person applies for senior position in financial industry
Person is engaged and salary agreed upon
One year later,performance is considered satisfactory
Bonus:- Person still has position

Simple and effective


I spent 6 months in Afghanistan this year but we the military and all the other public sector workers didn’t get a pay rise (and haven’t for 2 years) and next year it will be capped at 1%. My pension after 35 years in service will be seriously affected by several consecutive years of no movement in base salary and that will live with me for the rest of my life. The nation has had to seriously re-budget and national security, the health service, education and public sector service delivery (mostly to the most vulnerable and least able to deal with it) have all been compromised. The strikes and riots are all due to this and many people are facing redundancy or being put out of business. The public purse has bailed the banks out on several spectacular occasions and now the coffers are running dry, but still there are people who think it is appropriate to offer and receive disproportionate bonuses. Please tell the wives and families of those that have given lives, limbs and sanity to their country, and those that now face ruin, long term unemployment, pension blight and fiscal misery that it is still ok to take a bonus – because ??? – oh yes – that one person still has a job because his/her performance is satisfactory. You may think this is acceptable,but, it isn’t any longer !

Ray Ford says:
28 December 2011

Lem, you read me wrong! the point i was hinting at was that:- if the person was NOT satisfactory, he/she was out on his/her ear with NO bonus and the message “Don,t call us we,ll call you!”

Sally Anne Farmer says:
19 July 2014

I cannot see why the private banking sectors are allowed to be bailed out with public money when they realise a loss “on the books” because of uncollected credits, or trading losses. Since the banks already create money as debt out of thin air – a fairer system might be if the government would allow the banks to create the extra money needed to wipe the debts off their books, instead of fleecing the public! I am sure this system would work, especially if it was part of the official secrets act, and I cannot see any reason why this shouldn’t happen