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FSA Seeks Ban on Hostile Bank Buy Outs

Patrick Jenkins, Sharlene Goff, Megan Murphy HKSCKPVIamp; Brooke Masters, Financial Times

Hostile bank takeovers should be outlawed as part of a package of reforms needed to avoid a repeat of the catastrophic failings at Royal Bank of Scotland, the chairman of the Financial Services Authority has urged after releasing a long-delayed report into the the bank’s collapse. “[They] should either be completely banned or the regulator should have the power to block them,” Lord Turner told the Financial Times.

The 450-page report into management and regulatory failings at RBSin the run-up to its ill-fated 2007 takeover of Dutch rival ABN Amro – which the FSA dubs “a gamble” – outlines a catalogue of errors that triggered the biggest bank failure of the financial crisis.

The failure of RBS – the biggest bail-out of the financial crisis in Britain – cost UK taxpayers £45 billion ($70.2 billion) in equity injections. Last year the FSA terminated a 17-month investigation into RBS with a brief statement, insisting that a report would “add little” to public understanding of what went wrong. The FSA admitted on Monday that three reports had been compiled at the time by consultants at PwC, with the findings now summarised as part of the new document.

To ensure against a similar disaster, the report recommends that UK laws be changed to allow directors at failed banks to be automatically banned, fined and stripped of their remuneration. “The fact that no individual has been found legally responsible for the failure begs the question: if action cannot be taken under existing rules, should not the rules be changed for the future?” it says. The report is also critical of the regulator, and reveals that only six FSA staff were assigned to supervise the UK’s largest bank at the time of its failure.

The report heaps a large portion of the blame for RBS’s collapse on the then Labour government and the UK’s once-trumpeted “light touch” approach to bank regulation. The report specifically cites a 2005 “Better Regulation Action Plan” announcement from then chancellor Gordon Brown, which trumpeted “not just a light touch but a limited touch”.

The report is particularly damning of RBS and former management led by Sir Fred Goodwin, the vilified former chief executive, and Johnny Cameron, former head of investment banking. “Underlying deficiencies in RBS management, governance and culture ... made it prone to make poor decisions, “the report says.

“The bank boardroom should never be the place for initiation or endorsement of a daring strategy. The risks in banking are simply too great,” City grandees Bill Knight and Sir David Walker added in a commentary on the report prepared for the Treasury Select Committee.