The failure of the Royal Bank of Scotland - part one: Why did RBS fail?

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In October 2008, the Royal Bank of Scotland (RBS) failed and had to be part-nationalised. Why did this failure occur? Many accounts of the events refer to RBS's record £40.7bn operating loss for the calendar year 2008. But that loss is not in itself an adequate explanation of failure. Most of it indeed had no impact on standard regulatory measures of solvency.