Comment: Real lesson is weakness of the regulator

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UP TO ten former senior managers who worked at HBOS in the lead-up to its catastrophic collapse could be banned from working in financial services after the publication of damning reports into the bank’s demise. The bank collapsed in 2008 and was bought by Lloyds, but the scale of its bad loans was such that the government had to step in to bail out the combined pair at a cost of £20.5 billion.

But only one executive, former corporate bank chief Peter Cummings, was punished by regulators. He was fined £500,000 and banned from senior jobs in financial services.

The main report, from the Prudential Regulation Authority and the Financial Conduct Authority, successors to the Financial Services Authority (FSA), blames the bank’s executives for its failure, as well as being critical of the FSA. But it is a separate report, from Andrew Green QC, which is perhaps the most damning, suggesting the two regulators should consider banning ten former HBOS executives from the City.

It is too late to fine former directors, and the possible ban is a rather empty threat. Would any of the former HBOS chiefs – Hornby, Crosby and Stevenson – really want to work for a bank again?

The report is important in that it establishes the principle that senior bankers who run these historic and important institutions – the Bank of Scotland on The Mound was formed in 1695 – in a reckless manner can be held directly accountable for their actions.

But the real lesson from these reports is the weakness of the regulator and its officials.

If we are to avoid such collapses in the future then punishing the HBOS crew will only play a small part of that. It is ensuring that we have a regulator with muscle and teeth, who can act before it is too late, that is the vital lesson.

A banking crash which brought down two great Edinburgh icons must never be allowed to happen again.