The report released today (12 December 2011) found the choices made by RBS’ management coupled with "deficiencies in the global capital regime" were the main reasons behind the bank’s humiliating bailout.
But the regulatory body also criticised its own flawed supervisory approach which provided an "insufficient challenge" to the options taken by RBS.
Commenting about the report FSA chairman Adair Turner said: "It describes the errors of judgement and execution made by RBS executive management which, in combination, resulted in RBS being one of the banks which failed amid the global crisis.
"These were decisions for whose commercial consequences the RBS executive and board were ultimately responsible."
The six main factors highlighted by the report were:
- Significant weaknesses in RBS’s capital position, as a result of management decisions and permitted by an inadequate global regulatory capital framework.
- Over-reliance on risky short-term wholesale funding, which was permitted by an inadequate approach to the regulation of liquidity.
- Concerns and uncertainties about RBS’s underlying asset quality, which in turn was subject to little fundamental analysis by the FSA.
- Substantial losses in credit trading activities, which eroded market confidence. Both RBS’s strategy and the FSA’s supervisory approach underestimated how bad losses associated with structured credit might be.
- The ABN AMRO acquisition, on which RBS proceeded without appropriate heed to the risks involved and with inadequate due diligence.
- An overall systemic crisis in which the banks in worse relative positions were extremely vulnerable to failure.
Turner called for the current banking rules to be changed in a bid to tackle the controversial fact that, three years on, no-one has been punished for RBS’ failure.
He added: "The fact that no individual has been found legally responsible for the failure begs the question: if action cannot be taken under existing rules, should not the rules be changed for the future?"
By Andy Pearce