Britannia Radio

TELEGRAPH   26.2.09
Mervyn King: Regulators unable to stop City banks taking risks due to 
Government
Mervyn King, the Governor of the Bank of England, has said that 
financial regulators were unable to stop City banks taking huge risks 
because they did not get support from the British Government and MPs.

By James Kirkup, Political Correspondent

Regulators who had criticised banks lending in 2006 or 07 would have 
had "a massively difficult task" persuading politicians to back them.

"They would have been seen to be arguing against success," said Mr King.
Suggesting that politicians were in thrall to powerful banks, Mr King 
said any regulator who challenged the banks would have been left 
isolated and "lonely. "

Institutions would have said "'who are you to be saying we are taking 
big risks? How dare you tell us we should stop taking such risks, can 
you prove to us that the risks we are taking will necessarily end in 
tears' - and of course they couldn't".

He added: "The same was true of employees inside institutions."

The answer was not to create more regulatory committees but to have 
an independent voice prepared to speak out.

Mr King went on: "It's very hard to say to someone who appears to be 
very successful that what you are doing is potentially damaging to 
the rest of the economy."

He called for "very simple mechanisms to put some sand in the wheels 
in the expansion of the financial system".

The Governor stressed: "The most important lesson is, think big, 
stick to first principles.   You have got to be willing to say, 
'what's going on in the City is not in the national interest'."

The Governor urged MPs not to try to hold the Bank accountable for 
things that it did not have powers over, saying: "We are still 
limited, in the end, to writing reports."

Pressed as to what new powers the Bank might like, he said it ought 
to have the power to request information from banks.

His words, giving evidence to the Treasury Select Committee, echoed 
Lord Turner, the head of the Financial Services Authority at a 
hearing on Wednesday.

Mr King also said it is "impossible to say" how much capital will be 
required to shore up the British banking system.

Mr King said it would take "many months" to establish the scale of 
toxic assets held by banks, and the scale of problems would change 
depending on the international economic outlook.

Mr King said it was vital to "find out what is really on the balance 
sheets of our major banks".
"That is not something that is easy to do or can be done quickly," he 
told the MPs. "It will require a much longer and more detailed 
assessment contract by contract."    He went on: "It will certainly 
take many months in my view."

Mr King said the state of the global economy would have a huge impact 
on the situation of struggling UK financial institutions.
"How much capital banks will need in the end is impossible to tell," 
he added.

Mr King dismissed as "wild exaggeration" any suggestion that the 
country would have to be taken into administration because of the 
level of liabilities it had taken on from the banks.  [What that 
means bearts me! -cs]

But he also suggested public borrowing was too high as the UK entered 
the crisis and that had affected the Government's response to it.
"I do think public debt matters. We got to this crisis with levels of 
public borrowing which were too high and that made it difficult," he 
said.
But, he added, that was a "million miles" away from the idea that 
Britain in any way resembled somewhere like Zimbabwe.

Commenting on revelations about the £650,000-a-year for life pension 
of Fred Goodwin, the former boss of Royal Bank of Scotland, he said: 
"I'm not going to jump on the bandwagon of a rather unappealing 
vengeance.
"The real question is why anyone thought it was a good idea for 
executives to be rewarded in this way.
"You cannot blame one individual for the failure of a system."
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BBC NEWS - Blogs - Peston's Picks 26.2.09
The Goodwin pension questions
. Robert Peston

Having looked at the relevant part of Royal Bank's accounts, it does 
not seem to me that the bank was obliged to pay Sir Fred Goodwin a 
£650,000 pension with immediate effect.

The rules of its pension fund are that it was "allowed" to pay an 
early enhanced pension to a member who "retires early at the request 
of the company".

But it was not obliged to do so.

Also, and very relevantly, if the company had dismissed Sir Fred, 
rather than asking him to retire, then again he wouldn't have been 
eligible for these generous benefits.

So why did the board of RBS feel it was proper to give a £650,000 
pension for life to the chief executive that many blame for the 
colossal mess at RBS?

And did all board directors know about and approve the arrangement?

It would be odd if they didn't know, because Sir Fred has his own 
"funded, non-registered" pension arrangement outside of the main 
pension scheme. And the bank would probably have had to transfer an 
estimated £8m or so into that personal scheme to lift it to the 
required amount to finance the £650,000 payments (the total value of 
Sir Fred's pot, as I disclosed yesterday, is £16m).

Then of course there's the question of what the Government knew about 
all this.

Stephen Hester, the new chief executive, told me this morning that 
the Government approved the pension settlement with Sir Fred - which 
is potentially very embarrassing for the Chancellor and the Prime 
Minister.

I am told that the Treasury did indeed know last autumn that Sir 
Fred's pension pot had increased to a breathtaking £16m.

But it seems that ministers and officials believed at the time that 
Royal Bank had been obliged to make the payment. They claim to be 
gobsmacked to have since learned that the bank had discretion over 
whether to pay it.

They also point out that last autumn, when Sir Fred's departure terms 
were agreed, the state wasn't yet a shareholder in the bank. And they 
therefore relied on Royal Bank's chairman and non-executives to make 
sure Sir Fred received the minimum to which he was legally entitled.

Some may say that - if this was how it transpired - the Treasury was 
perhaps being naïve.

And if it were to turn out that any minister knew that Royal Bank 
could have said no to Sir Fred's bumper pension, well that would not 
be great for the image of a government which insists that it detests 
payments to executives for failure.

UPDATE, 15:09PM: I have learned the following material facts about 
how Sir Fred's pension payment was agreed.

The initial decision was taken - I am told - over the fraught weekend 
in October when ministers made clear that they wanted Sir Fred out of 
the bank.

The deal with Sir Fred was done by the bank's then chairman, Sir Tom 
Mckillop, in consultation with the senior non-executive director of 
the time, Bob Scott.

I am told the City minister, Lord Myners, was told about the pensions 
arrangement.

What's unclear is whether Myners was aware of the cost of the deal or 
that the bank wasn't obliged to pay the full £650,000 to Sir Fred 
with immediate effect.
The full board wasn't told about the pension settlement till January.
========================
SKY NEWS    26.2.09t Was Joking'
Sir Fred 'Will Think' About Giving Up Pension

The former boss of RBS Sir Fred Goodwin says he will "think" about 
giving up his £693,000-a-year pension.

The new chairman of RBS Sir Philip Hampton has spoken to Sir Fred and 
asked him to voluntarily reduce his pension.
"Fred has a very strong legal contract," he said.
"We have been reviewing this with out legal advisers. We have stopped 
this happening again.
"I have asked Fred if, given the events of recent times, would he 
make a voluntary reduction in his pension. He said he would think 
about it but I haven't heard back yet."

+++++++++++++++++++++++++++++++
Would it be very wrong of me to suggest that today's strong-arming of 
the former RBS chief has less to do with new facts coming to light, 
and more to do with a political imperative not to be on the wrong 
side of a bash-the-banker extravagaza...?
Joey Jones, Boulton & Co.