In its submission to the Scottish Parliament’s inquiry into the banking crisis, Scottish Financial Enterprise, the trade organisation and lobby group for Scotland’s banking and financial services sector, has come up a handy scapegoat.
In answer to the question: “What is your view on the cause, nature and impact of the recent difficulties in the financial sector in Scotland”, Edinburgh-based Scottish Financial Enterprise says:
“The cause was the worldwide financial crisis caused by the under-pricing of risk and the collapse in financial markets that followed, leading in turn to a seizing up of capital markets and a huge loss of liquidity. The impact in Scotland, as in all other financial centres around the world, has been severe.”
Yes, folks, that it!
There’s no mention of the fact that Scotland’s two leading financial institutions, Royal Bank of Scotland and HBOS, were among the most reckless banks in the world.
Nor that each was led by deluded and deceitful leaders who threw caution and integrity to the wind in their pursuit of scale.
Nor that they were both contemptuous of the interests of shareholders and depositors.
Nor that they were hugely over-leveraged and over-dependent on wholesale funding.
Nor that their boards of directors seemed clueless about the basics of banking and finance and did nothing to rein in the likes of Sir Fred Goodwin and Peter Cummings.
Nor is there any mention of the fact these two institutions would have gone bust if the UK government hadn’t stepped in and rescued them last autumn. It is almost as if Scottish Financial Enterprise would have us believe the people who led HBOS and Royal Bank of Scotland to the brink of oblivion are entirely innocent?
The document suggests that Scotland’s financial services community has failed to hold a mirror up to itself since the global financial crisis bega in with the collapse of Northern Rock in 2007. It’s all the more disturbing since, according to the Global Financial Centers Index, Edinburgh and Glasgow have slipped massively down the rankings last year.
In an article in the The Scotsman, Bill Jamieson said Scotland is in serious danger of being wiped out by Asian centres if it doesn’t acknowledge its failures and raise its future game.
The Scottish Financial Enterprise document is so mealy-mouthed and lily-livered there’s little point in quoting much more of it here. Except, perhaps, the following, astonishing, statement:
“Anecdotal evidence and common sense suggest that compliance and risk management will grow in importance, and possibly size, in many companies.”
Oh really?! The document also states:
“Scottish Financial Enterprise believes that the far-sighted approach is to keep a rigorous check on measures that might undermine our companies’ ability to compete internationally and to ensure that as far as possible any changes are co-ordinated internationally, to reduce the risk that regulatory systems are compromised by regulatory arbitrage (that is, playing one system of regulation off against another).”
I believe Scottish Financial Enterprise needs to go back to the drawing board, and start by recognising that Royal Bank of Scotland and HBOS were not innocent victims of some impossible-to-predict global seizing-up of credit markets post-Lehman (a “Black Swan” event). I acknowledge that this may have tipped them over the edge but the question Scottish Financial Enterprise ought to basking is why did they get to edge in the first place?
SFE also needs to recognise that there were plenty of other global banks, including Standard Chartered and HSBC, which managed their risks better and which survived the crisis more or less unscathed without socialising their losses.
Scottish Financial Enterprise is going to have to do better than this.
As Robert Burns wrote in his 1785 poem “To a louse” :
O wad some Pow’r the giftie gie us
To see oursels as others see us!
It wad frae monie a blunder free us,
An’ foolish notion:
What airs in dress an’ gait wad lea’e us,
An’ ev’n Devotion!
As Burns might have said, “roll on the next blunder.”