‘If the RBS had gone down it would have taken the rest with it,’ Alistair Darling, ex-Chancellor of the Exchequer, said on the BBC’s Today programme earlier this morning. He was being asked about the events in October as Royal Bank of Scotland and other banks were teetering on the brink of bankruptcy. Darling told how a senior executive of RBS had been in touch with him saying that the bank would go under in just a few hours. ‘Happily we did have a plan and we stopped the bank from closing,’ Darling said – and the government stepped in. The financial system didn’t go under, money could still be taken out of cash machines and bank accounts. Just like in Iceland the UK banks were pulled through and there wasn’t a break down of the financial system.
But unlike Iceland the Labour government at the time and now the coalition government of Conservatives and the Liberal Democrats have done nothing to poke around in the once-teetering banks to understand what happened at the RBS and other banks that had to be saved. It’s almost a law of nature that in companies heading for bankruptcy things are done that aren’t necessarily entirely legal – or entirely cricket at the Brits say.
Whom was the RBS lending to? Some Icelandic businessmen, among others. RBS headed for world dominion, or at least to grow faster than fast and bigger than big. And so it did. That’s what Kaupthing was doing as well. The strategy of growth above everything tends to lead to unwise and imprudent lending. Plenty of that in Kaupthing, also to UK clients like the Tchenguiz brothers, Kevin Stanford and others. And at the RBS? We don’t know because the bank hasn’t been picked over by the FSA or any UK authority. Neither has HBOS or Lloyds or any of the other UK banks that needed assistance at the time. Yes, admirably the Parliament has asked questions and produced reports but nothing that’s nearly enough to explain and clarify what was going on in the banks at the time.
And so it is that billions of public money were poured into the UK banks, no questions asked. Iceland has had its very thorough report of the operations of the collapsed Icelandic banks. In the US much has been done and many stories have come out, clarifying what went on in the US banking sector. In the UK: nothing.
Just as in Iceland British politicians were eager to see the growth of the banking sector in the years up to 2008. Leaders like Tony Blair and Gordon Brown were visibly in awe of the financial wizards of the City. Industry has been disappearing in the UK over the past decades, factories closing. Banking was the economy’s new save-all. In Iceland, the dream of making Iceland an international financial centre completely blinded the politicians. And the financial and regulatory authorities.
The same happened in the UK. The FSA was either inept or unable to keep up with the growing and ever more complicated financial sector. At the time, I thought that since the Icelandic banks operated in the UK nothing much could be wrong with them since the FSA surely would be a strict regulator in a country with such a big financial sector and so much attention and focus on it as well as a great tradition of making laws and regulations. – That turned out to be far from the truth, as the SFO might be finding out if it doesn’t give up on investigating Kaupthing. And the FSA probably didn’t too great a job on the UK banks either.
Now the UK coalition government is readjusting the architecture of the FSA but it will be run by Hector Sants as earlier. There is no indication of acknowledging what went wrong and why, let alone investigating anything at all. The Conservatives are living up to their reputation of being intimate with the City. And it doesn’t seem to change a thing that the Lib Dem Vince Cable, earlier so vocal and clear in criticising the banks, is now a business secretary.
As the two years’ anniversary of the financial world crisis nears, Icelander are well informed about the operation of the collapsed banks. In the UK nothing is or has been done to investigate the operations of the banks leading up to the collapse of some of the UK banks. And the otherwise so outstanding Today journalist who interviewed Darling this morning didn’t even think of asking why the Labour government hadn’t done anything to investigate the banks.
The UK seems to be like Luxembourg: the banking sector here is too omnipotent and influential, too wedded to the political sphere, to be asked impertinent questions.
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