RBS's failure in October 2008 has imposed large costs on UK citizens. To prevent collapse the government injected £45.5bn of equity capital: that stake is now worth about £20bn. But this loss is only a small part of the cost resulting from the financial crisis. The larger costs arise from the recession which resulted from that crisis, within which RBS's failure played a significant role. That recession has caused unemployment for many, losses of income and wealth for many more. Quite reasonably, therefore, people want to know why RBS failed. And they want to understand whether failure resulted from a level of incompetence, a lack of integrity, or dishonesty which can be subject to legal sanction.
This Report aims to provide that account. It identifies the multiple factors which combined to produce RBS's failure. It describes the errors of judgement and execution made by RBS executive and management, which in combination resulted in RBS being one of the banks that failed amid the general crisis. These were decisions for whose commercial consequences RBS executive and Board were ultimately responsible. It sets out the FSA's Enforcement Division's assessment of whether any management and Board failures could be subject to regulatory sanction. It also describes deficiencies in the overall global framework for bank regulation which made a systemic crisis more likely, and flaws in the FSA's approach to the supervision of banks in general and RBS in particular which resulted in insufficient challenge to RBS.
Key questions addressed include:
• First, why has no-one in the top management of RBS been found legally responsible for the failure and faced FSA sanction? And if action cannot be taken under existing rules, should not the rules be changed for the future?
• Second, why was the global approach to bank regulation deficient and the FSA's supervisory approach flawed? And have regulations and supervisory approach changed radically enough in response to the crisis?