Collective failure exposed

The National Audit Office’s report into the government’s handling of the banking crisis and taxpayers’ continued exposure is a pandora’s box of financial horrors. The NAO estimate that taxpayers are underwriting liabilities exceeding £850bn and, buried in the document, is the revelation that the FSA and the Treasury gave RBS “a clean bill of health” in October 2008, days before the bank nearly collapsed. Details are scarce and I haven’t seen the relevant Treasury document to which the NAO refers; but this disclosure is astonishing, even by the standards of Fred the Shred, the FSA et al.

This crisis was caused not by market failure but by systemic incompetence within the banking’s sectors most regulated arm – the commercial. RBS’s lending exceeded its capital by a multiple of 50, a strategy that was, to put it decorously, completely bloody reckless. It is unthinkable that the Treasury and the FSA were unaware of RBS’s sense-averse business model; therefore, regulators condoned RBS’s risk.