Britannia Radio

Now we are beginning to get at the truth!  Tracy Corrigan starts it 
off but Michael Fallon MP gets right to the heart of it and points 
clearly towards the end of his article at the real villain of the 
piece - It is Gordon Brown , unelected to lead his party and 
unelected by the voters set the scene for the disaster, with a 
Financial Services Authority (FSA) which undermined the banks and 
broke their previous golden rule that lending should never exceed 
assets.  This FSA was Brown's pride and joy and tax revenues boomed 
while the bubble grew and have now collapsed.

Read Fallon and be clearer both of how we got here and what we must 
do now.

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TELEGRAPH     10.2.09
At last, contrition from bankers - but it won't fix the system
Posted By: Tracy Corrigan

There's something quite disarming about an abject apology. The four 
bankers who appeared before the Treasury Select Committee this 
morning - Sir Fred Goodwin and Sir Tom McKilllop, former chief 
executive and chairman of Royal Bank of Scotland, and Andy Hornby and 
Lord Stevenson, previously in charge of HBOS - did exacly what was 
expected of them: they said they were sorry.

They have plenty to be sorry for, since their banks had to be rescued 
from collapse and their shareholders, customers and colleagues have 
suffered considerable distress as a result.

Cynics may argue that their profuse apologies were coached. 
Certainly, the men have taken legal advice and PR advice on how to 
handle their grilling, but since some of them face litigation as well 
as public vilification, this seems only sensible. As far as I could 
see, these are not men who are feeling pleased with themselves. They 
all look considerably older and more drawn than they did a year or so 
ago, and their contrition seems genuine.

Saying sorry doesn't make it all OK, of course. But neither should we 
assume that only those who have apologised have anything to be sorry 
for.

These four men played a considerable role in bringing their banks to 
the brink of disaster and both banks, in different ways, took 
excessive risk. But they could not have done it alone. Regulators 
approved RBS's acquisition of ABN Amro, as did 95 per cent of its 
shareholders. Sir Fred was so convinced he was right that he ignored 
all those who said he was overpaying for a mediocre (at best) Dutch 
bank. But he was allowed to proceed by complacent fund managers and 
weak regulators, among others. The story is the same throughout the 
banking sector.

This has to change and mea culpas from some of those responsible for 
the current mess are only a first step. As Goldman Sachs' Lloyd 
Blankfein pointed out in an excellent column in the Financial Times, 
self-regulation has its limits.  As Mr Blankfein noted "our self-
interest in preserving and expanding our market share, as 
competitors, sometimes blinds us."

When Citigroup's Chuck Prince made his famous "we're still dancing" 
remark just before markets collapsed, for which he was pilloried, he 
was in fact reflecting a broad behavioural truth in the banking 
industry. Sir Fred and Mr Hornby weren't just dancing, they were 
having a party. But there is a culture in the industry where saying 
no to profitable business tends to cost bankers their jobs, let alone 
their bonuses. So generally they don't do it. It will require 
externally imposed, internationally coordinated measures, including a 
rethink on remuneration and corporate governance, to alter that culture.
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CONSERVATIVE HOME Blog  10.2.09
  The banks failed. The FSA failed. Gordon Brown failed.
     Michael Fallon

Michael Fallon MP is Deputy Chairman of the Treasury Select Committee.
They said they were sorry, deeply sorry.  One by one, each of the 
four disgraced bank chiefs apologised in front of the Treasury Select 
Committee.

But as the session went on, those apologies started to fade.  It was 
all down to the "turn of events".  Things happened that nobody 
foresaw, that nobody could have foreseen.

This won't do.  It wasn't a "turn of events" that brought down RBS 
and HBOS.  Each bank made serious mistakes, and their boards failed 
to prevent them.

RBS made two huge mistakes.  Its funding gap - the gap between its 
liabilities and its deposits - grew from £83 billion in 2003 to £164 
billion in 2008.  That gap was easily the biggest of any British 
bank, and twice the size of Barclays' funding gap.  It was one third 
of the total funding gap of all six big UK banks.

Ten years ago banks didn't lend out more than they had in on 
deposit.  But in the rush to get bigger and bigger - and to claim 
those bonuses for deals done rather than value added - they simply 
borrowed more and more from the wholesale money markets.

Much of RBS's funding gap was the result of a further mistake - the 
acquisition of ABN Amro.   RBS paid £10 billion for Amro right at the 
top of the market.  They pressed ahead with the acquisition even 
after Amro had pre-sold LaSalle, the business RBS really wanted, even 
after every City investor and analyst said they were paying too much, 
even after the credit crunch had started.

Today the former chairman confirmed to me that RBS's investment in 
Amro is now worthless.  They're having to write off £15-20 billion on 
the deal. That's almost exactly the amount the taxpayer has now had 
to put into the RBS balance sheet.  Thank you Sir Fred Goodwin.

HBOS' mistake?  40% of their lending was for property and 
construction.  But even after the property market turned down, they 
just went on lending.  Often they took equity stakes in the 
businesses they were banking.  All of this has now had to be written 
down, as property values here in the UK have fallen.  Nothing to do 
with sub-prime in the US.

But whatever happened to regulation    Why did the banking 
supervisor, the FSA, approve all this lending?    Did it not 
understand how much RBS was over-paying for Amro?  Or how much HBOS 
was exposed to the property bubble ?   Or how both banks were over-
dependent upon the wholesale money markets?

Yes, the bank directors were feeble.  There weren't high calibre non-
executive directors capable of standing up to powerful chief 
executives.  But again, why didn't the FSA step in and insist that 
the Boards be beefed up?

The regulator failed.  In fact everybody  [except one in HBOS  -whose 
name I'll get tomorrow - and he was ignored! -cs] failed to blow the 
whistle.

The dealmakers needed acquisitions for their multi-million bonuses. 
The government had every reason to keep the party going: those bonus 
were a huge part of its income tax yield.  The FSA was hooked on its 
light-touch regime.

Remember: when Gordon Brown first set up his new system of banking 
supervision, the amount British banks lent out was matched by the 
amount that they held on deposit.  In fact, they were often in 
overall surplus.

By the time he finished as chancellor, they were lending over £625 
billion more than they held on deposit.  That's not supervision - it 
was sheer recklessness.  It's that funding gap which is the key to 
understanding how our banks have crumbled.

Never again.  We need banks that do banking - simple, straightforward 
banking.  Taking in deposits and lending out against them.  Measuring 
risk properly.  Tailoring bonuses to genuine performance and long-
term shareholder value.

And we need a proper regulator.  Brown's FSA quango has failed us all 
- it slept through Northern Rock, it didn't challenge the Scottish 
banks, and it didn't warn against the Icelandic banks.  3,000 
bureaucrats who didn't do their job.  Thank you again Gordon Brown.