The Great Debate UK
By Peter Thal Larsen
The author is a Retuers Breakingviews columnist. The opinions expressed are his own.
The failure of Royal Bank of Scotland shows bank reform still has some way to go.
The report should dispel any doubts that new Basel III rules make banks safer. Using this measurement of capital, RBS's equity Tier 1 capital ratio at the end of 2007 was around 2 percent -- well below the 7 percent now considered to be an acceptable minimum. Under the new regime, RBS would have been prevented from paying a dividend at any time from 2005 onwards. Its heavy dependence on short-term funding would also now be deemed unacceptable.
However, RBS's collapse was also a failure of supervision. The FSA describes in painful detail how its team of supervisors -- which comprised just six people, compared to 23 today -- did little to challenge the bank's assessment of the risks it faced. That approach reflected the reigning theory of efficient markets and political pressure to maintain a "light-touch" regulatory regime. Both those factors no longer apply. Moreover, UK bank supervision is being transferred to the Bank of England.
- Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own. -
We could see it coming, couldn’t we? Those gigantic over-leveraged hedge funds were bound to come crashing down, as their massive bets turned sour, forcing them to default on their bank loans and bringing the banking system to its knees.