Abstract
This chapter of the book presents the first of the empirical studies and discusses the extent to which learning has taken place at RBS. The chapter argues that despite making some positive changes post-2008, RBS has, for the most part, failed to learn lessons from the crisis. It is suggested that RBS’ lack of learning can be attributed to successive regulatory and governance failures that have led the bank on a series of ‘firefighting’ missions. The chapter argues that RBS has been consumed with the minutiae detail of specific failures that have diverted time and resources away from learning. As a result, the group has failed to undertake a fundamental review of its underlying philosophies, objectives and standard operating procedures in light of the lessons of the financial crisis.
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Notes
- 1.
We should note that while RBS would eventually sell the international arm of Coutts to Union Bancaire Privée, the incident in question occurred while Coutts was still a part of the RBS group (for further discussion see Arnold, 2015).
- 2.
It must be stressed that Mr Hourican was in no way directly implicated in such matters nor is there any evidence that he had any prior knowledge as to what was happening.
- 3.
The reporting of such transactions is particularly important to the effective functioning of markets because, while there is no evidence that RBS’ transgressions led to any nefarious activity, such failures can often facilitate criminal acts such as insider trading and other questionable market-based behaviour (Wilson, 2013).
- 4.
We should note that Lloyds, Barclays and HSBC have all been found guilty by regulators for similar dealings.
- 5.
In this case, exposure to the scandal has been measured in terms of the size of the compensation package that has been set aside.
- 6.
Most notably, RBS has failed to enhance whistle-blowing facilities at the bank which may have, and may yet still, prevent future governance failures.
- 7.
The presence of certain institutional path dependencies at RBS may also explain why perceived structural competitive pressures have been more punctuated at the bank than at rival institutions such as Lloyds that have similarly retrenched operations on domestic markets. For example, regulatory equivalency standards set out by CRD IV have introduced new upper limits on variable remuneration across both EU and UK markets (James & Quaglia, 2020). As such, we may expect those institutions that have retrenched operations on domestic and European markets to be less sensitive to competition than those banks that have maintained or extended their international exposure, such as Barclays and HSBC, and which has subsequently brought them into competition with rival institutions that are not held to the same regulatory standards.
- 8.
This will be extended to four years under CRD V (introduced December 2019 with an implementation date of December 2020). For further discussion see: Samuels (2019).
- 9.
We should note that such regulatory requirements were established before the UK’s withdrawal from the EU. The UK has now entered into a transition period, due to end on 31 December 2020, during which EU law continues to apply.
- 10.
In June 2018, UKFI would be absorbed into UK Government Investments (for further discussion see Jenkins, 2018).
- 11.
Discussed above.
- 12.
We should note that the controversial ‘fixed share allowance’ (discussed below) does not fall under ‘variable remuneration’ and as such is excluded from these figures.
- 13.
Lloyds are the only bank in this study that have not sought shareholder approval to increase fixed pay to the upper limit of 200% of base salary.
- 14.
The group would also retain its controversial fixed share award (discussed below).
- 15.
It should be noted that like RBS, Lloyds, Barclays and HSBC are also utilising so-called role-based allowances with Lloyds and HSBC similarly rewarding employees in shares exclusively. Barclays are the exception paying staff in both cash and shares.
- 16.
However, we should note that changes to minimum capital standards introduced by Basel III, along with the definition of tier 1 capital, may have affected the efficiency of borrowing on wholesale markets. As such, we should not consider these figures in isolation. For further discussion see Agur (2013).
- 17.
- 18.
Leverage is the inverse of the capital ratio - if capital levels are down leverage ratios will be up by definition.
- 19.
Discussed in more detail below.
- 20.
Discussed in more detail below.
- 21.
The exception being so-called subprime mortgages most closely associated with US markets and which as we have previously seen were laden with a plethora of risk and uncertainty.
- 22.
To reiterate, as part of its 2008 bailout deal RBS would be forced to shed over £1 trillion of assets from its balance sheet and disinvest a number of businesses in order to increase competition within banking markets.
- 23.
RBS’ disinvestment experience stand in stark opposition to that of Lloyds, which, like RBS, has also been forced to shed parts of its business due to its receipt of state aid. However, in contrast to RBS, Lloyds has completed its disinvestment projects in a timely manner and in many cases before the imposed deadline (discussed in more detail in the coming chapter).
- 24.
Ms Rose would succeed Ross McEwan as GCE in November 2019 making her the first women to lead a major UK bank (Megaw, 2019b).
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Barber, A. (2021). RBS: Learning to Fail and Failing to Learn. In: UK Banks and the Lessons of the Great Financial Crisis. Building a Sustainable Political Economy: SPERI Research & Policy. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-70254-0_4
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