Called to account at last

The bankers vilified up and down the country for plunging us all into financial crisis will next week face Treasury Committee members investigating the credit crunch. So what should the MPs ask them? Sean Farrell reports

So what qualified any of you to run a bank in the first place? Shouldn't some of you have had more banking experience?

None of the four men was aseasoned banker who had run a lender in a recession or financialcrisis before. Former Royal Bank of Scotland chief executive Sir Fred Goodwin was an accountant before serving a three-year apprenticeship at the small Clydesdale Bank and joining RBS in 1998. His chairman, Sir Tom McKillop, was a chemist who ran the drug company AstraZeneca before joining RBS (though he had been a non-executive at Lloyds TSB). Former HBOS chief executive Andy Hornby was a star Harvard MBA graduate and worked at Asda before joining Halifax in 1999 and only ran retail banking before getting the top job. Lord Stevenson, a former management consultant, was chairman of the media group Pearson when he became chairman of Halifax in 1999. MPs should ask whether they were the right people to be running such complex, risky businesses in a boom.

Do you plan to give back bonuses?

Sir Fred was paid a £2.9m cash bonus in 2007, partly reflecting the "successful" acquisition of ABN Amro which eventually crippled RBS. Mr Hornby's annual bonus was a more humble £449,000. Lord Stevenson earned £821,000 that year, while Sir Tom was paid 750,000. The public deserves to know how bankers, particularly Sir Fred, can justify holding on to what look like "rewards for failure".

How much personal responsibility do you take for the plight of your bank and the financial crisis?

Sir Fred and Sir Tom went for months trying to blame outside events for the crisis at RBS, expressing a "degree of contrition" and "regret" before eventually saying they were sorry in November. They will no doubt be ready for the question but the committee should ask them to face their responsibilities. Mr Hornby may have to resist the urge to share the blame with Sir James Crosby, whom he replaced in 2006, who now advises the Government on the mortgage market.

Why did RBS insist on going ahead with the ABN Amro acquisition?

The £10bn deal to buy the Dutch lender's investment bank and Asian operations left RBS poorly capitalised and increased the risky assets on its balance sheet just as markets were going bad. RBS chose not to pull out or renegotiate despite pressure from shareholders. Many accuse Sir Fred of pressing on because he could not bear to let his arch-rival, John Varley of Barclays, beat him to the deal.

Did RBS know what it was buying in ABN Amro?

Companies are meant to do "due diligence" checks of a target's books before making an acquisition. RBS has already been hit by ABN's £400m of losses to the Madoff fraud and £1bn of bad loans made to Lyondell Chemical in the US.

Was banking regulation too lax?

How much will the banking bosses try to palm off the blame on to the Financial Services Authority and the Bank of England, which let them weaken their balance sheets during the credit bubble? The MPs must find out as much as possible about their dealings with the regulators.

What do you say to shareholders who took up your rights issues?

After denying the need for morecapital for months, RBS launched a record £12bn rights issue at 200p a share last April, closely followed by HBOS's £4bn cash call at 275p a share. Both banks then had to go to the Government for another £20bn (RBS) and £8.5bn (HBOS) in October. RBS shares closed yesterday at 24p, while HBOS was forced to sell up to Lloyds.

What happened to old-fashioned risk management?

Commercial bankers are meant to be cautious types in drip-dry shirts who avoid excess risk and act as middle-men between savers and borrowers. Even without ABN Amro, RBS turned its corporate bank into a massive dealer in exotic debt securities and built up dangerous exposures to commercial property, shipping and other risky assets.

Did Sir Fred's drive for results lead to risk management being neglected? HBOS's biggest problems are not in Halifax's mortgage book, racy though it looks, but in Bank of Scotland's huge exposure to commercial property and the retail sector. Was HBOS, formed in late 2001, run as two banks and did Mr Hornby have a grip on what Peter Cummings, head of corporate, was up to?

Did your balance sheets accurately reflect the shape of your business?

Financial products became so complex during the debt boom that few people could really understand what the banks were holding. It was not until the credit crunch forced RBS to come clean that the full extent of its exposures was revealed. RBS faces a class action suit in the US from investors who say they were not told the truth about the bank's strength when it sold them preference shares as the crisis took off.

HBOS ran the country's biggest conduit fund, Grampian, which moved mortgage assets off balance sheet. The bank's investors were stunned to find its Treasury operation had large exposures to risky US credit assets.

What would have happened without the Government's bailout?

The Government's first bank rescue plan, driven through over a weekend in October, was aimed at saving RBS and HBOS. Industry sources say that without the Government's promise of massive capital support, both banks could have been unable to open for business at the start of the week because markets had withdrawn funding, leaving them as massiveversions of Northern Rock.

Are you embarrassed by your various honours?

Labour MPs have called for Sir Fred's knighthood, awarded in 2004 for services to banking, to be withdrawn. Sir Tom received his knighthood for services to pharmaceuticals and Lord Stevenson got a peerage in 1999. Mr Hornby may think himself lucky he never made it to the Palace.

What exactly is a scallops kitchen?

Sir Fred kept a close eye on Gogarburn, RBS's £350m Edinburgh HQ built on the site of a former lunatic asylum. He strenuously denied reports he ordered a scallops kitchen close to his office. But the MPs must check one more time, or at least find out what such a kitchen really does.