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Scotland has learnt nothing from the collapse of its two biggest banks

September 26th, 2009

Robert Burns; image courtesy of The Guardian

In its submission to the Holyrood Parliament’s inquiry into the banking crisis, Scottish Financial Enterprise, the trade organisation for what remains of Scotland’s once proud financial services sector, has come up with one of feeblest and most complacent documents I’ve ever had the displeasure of reading.

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 SFE 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 madcap pursuit of scale. Not that they were both contemptuous of the interests of shareholders and depositors. Not that they werre massively over-leveraged and ridiculously over-dependent on wholesale funding. Nor that the boards RBS and HBOS were so clueless about the basics of banking and finance they did nothing to rein in crazed leaders like 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 — even euphemistically.  Presumably SFE would have us believe the people who led HBOS and Royal Bank of Scotland to the brink of oblivion are entirely innocent?

The complacency and blandness — evidence, perhaps, of a singular failure by Scotland’s financial services community to hold a mirror up to itself — that permeates this document are breathtaking. 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 SFE document is so mealy-mouthed, so lily-livered that there’s little point in quoting much more from 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:

“SFE 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).”

A starting point would be to recognize that RBS and HBOS were not innocent victims of some impossible-to-predict global seizing-up of global financial markets post-Lehman (a “Black Swan” event). I acknowledge that this may have tipped them over the edge but the question is, why did they get to the edge in the first place. SFE is going to have to wake up and smell the coffee  and recognise that there were plenty of global banks including Standard Chartered and HSBC which managed their risks better and which survived the crisis more or less unscathed.

SFE is going to have to come up with better than this. And it’s going to have to do serious soul-searching if it’s going to justify its existence going forward. If I was in charge of a Scottish financial services business, I would certainly be withholding my subscription forthwith — at least until the body showed itself to be capable of reflection and self-awareness.

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.”

Note: SFE also admits it doesn’t have a clue how many people work in the sector it purports to represent. The body says it recently revised its own estimate downwards from 106,000, to 86,000, before adding “some self-describing surveys put it at 145,000.” If it doesn’t even know this, one wonders what does it know.

Short URL: https://www.ianfraser.org/?p=928

Posted by on Sep 26 2009. Filed under Blog. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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