The Great Debate UK
“Don’t cry for me, RBS” could certainly be the lament being sung by Stephen Hester, outgoing CEO of bailed out Royal Bank of Scotland, after the shock announcement that he will have left the bank by the end of this year. CEOs of banks come and go; however, the government stake in RBS makes this CEO particularly important.
There are two things that make Hester’s departure fascinating: firstly, the fact that the RBS board along with the Treasury have concentrated on how a new leader is needed to privatise the bank. Secondly, the fact that Hester doesn’t seem to want to go.
During an interview with BBC Radio 4 less than 24 hours after the announcement was made, Hester admitted that he wanted to take the bank through its privatisation process “for me that would have been the end of the journey.” However, that was not meant to be, and he said he “understood” that “new blood” at RBS was a good thing.
Did he have a spat with Georgie-boy at the Treasury? Did he ask for a bigger bonus or was he planning on an off-shore tax account? Did he have something in his past that made him a media risk? We will likely never know. The RBS Chairman, Sir Phillip Hampton, sounded fairly shell shocked in an interview soon after the announcement. He feebly mentioned that Hester had been in the job for 5-years, he was 52 and so the time was right for him to leave, after all, CEO’s only tend to stay in their roles for 5-ish years, he added. Maybe Hampton needs to be worried – he is 59 and has been at the bank for 4 years…
But while we can speculate on the political interference or not of Hester’s departure, there are a couple of concerning points that I, as a British taxpayer, want answered about RBS.
-- The author is a Reuters Breakingviews columnist. The opinions expressed are his own --
The "too big to fail" problem will be partly fixed in 2011. Global regulators should end up agreeing to make a select group of big global banks hold higher levels of capital. That will make them safer, while removing some of the benefit they get from being big. But eliminating the taxpayer guarantee enjoyed by large lenders will require more fundamental measures. That will take years to achieve.
Regulators everywhere agree that banks deemed too big to fail are dangerous. Because of their importance they enjoy implicit -- and sometimes explicit -- government support. As a result, large lenders tend to have higher credit ratings and pay less for deposits and wholesale funding. This encourages them to become even larger and more interconnected.
Broadly speaking, there are two ways to tackle this problem. One is to make big banks less likely to fail. The other is to reorganize them so that they can be allowed to fail without threatening the system. In 2011, regulators are likely to concentrate on the first option.
Can a bank be "too clubby to fail?" Former Washington Mutual boss Kerry Killinger thinks so -- and reckons WaMu's outsider status explains why it wasn't bailed out in September 2008. The circumstances of the West Coast lender's demise do raise legitimate questions. But if anything, WaMu was more sacrificial lamb than outcast.
Killinger, who was ousted as chief three weeks before the bank went under, pointed out that WaMu was excluded from the Treasury's initial July 2008 list of financial firms whose shares speculators could no longer short. The Federal Deposit Insurance Corp also made the highly unusual step of seizing the bank on a Thursday rather than a Friday. And if regulators had waited just a week longer, WaMu, he argues, would have benefited from a number of government programs that shored up the banking system.
- Chris Morling is managing director of money.co.uk. The opinions expressed are his own. -
With Britain’s biggest banks widely tipped to report record profits this month debate over banking reform rumbles on. But why have proposed reforms ignored the concerns of the retail banks’ disillusioned customers?
Amid the turmoil of the 2008 financial crisis a myriad of events unfolded that the general public knew nothing about, writes New York Times reporter Andrew Ross Sorkin in a new book titled “Too Big to Fail.”
Wall Street fell from the dizzying heights of good fortune to calamity in a matter of months. To a large degree it’s still to early to tell whether financiers and politicians involved made the right choices.
from The Great Debate:
So it can be done after all.
Britain is poised to take tough steps to break up the large banks it rescued, setting it in stark contrast to the United States, which seems set on a policy of shoring up the unfair advantages it grants its too-big-to-fail banks while regulating around the edges.
It is quite a change for Britain, which has a sorry history of self-serving self-regulation in financial services combined with limp and outgunned official control.