I can't say that I disagree with any of that, but if the FSA had been doing its job properly then hostile bank takeovers would not have been possible. RBS would not have been permitted to blow many billions of capital on a pool of assets that it didn't understand.
The reason there is no criminal penalty for such reckless behaviour is simple. There is a presumption that banks are sufficiently tightly regulated that they wouldn't be able to do the boardroom equivalent of staking all their chips on red at the roulette table. There are already criminal offences if directors act recklessly or negligently. Further sanctions should be unnecessary for banks because they are regulated.
The FSA report reads as follows:
RBS management and Board undoubtedly made many decisions which, at least in retrospect, were poor. They took risks which ultimately led to failure. But if they had taken similar risks in a non-bank company, the question of whether regulatory sanctions were applicable would not have arisen. That is because in non-bank companies the downside of poor decisions falls primarily on capital providers, and in some cases on the workforce, and to a much lesser extent on the wider society.
The ABN AMRO acquisition illustrates the point. The due diligence conducted was inadequate to assess the risks. But it was typical of all contested takeovers, and in non-bank sectors of the economy launching a bid on the basis of limited due diligence might be a reasonable risk to take if the Board believed that the upside opportunities justified it. If the acquisition went wrong, shareholders would suffer, and it would be for them to decide whether to sanction the management or Board by firing them.The glaring hole is that the FSA was not doing its job. RBS bought ABN for £50 billion on the basis of 2 ring binders of data and a CD, That is probably too little to support a £10 million overdraft facility, let alone an equity purchase 5,000 times the size.
For the FSA there is a simple 5 step bank supervision process
- Why are you doing that?
- I really don't think you should be doing that
- I said I really don't think you should be doing that
- Stop that
- You're fired
But if RBS' purchase of ABN is to be treated as a criminal act in future, what is the FSA's reaction to the supposedly friendly but similarly blind pucchase of HBOS by lloyds, which was forced through as a political imperative by Brown & Victor Blank ... with scarcely a murmur from the FSA.