We should not pay a penny of RBS’s fraud fine

The cost, which could rise above £300m, should come out of the bankers' bonus pool

Share
Related Topics

When taxpayers rescued the Royal Bank of Scotland (RBS) in December 2008, eventually amassing an 82 per cent stake, it was assumed that from then onwards everything would be conducted in a clean and prudent manner. Unfortunately it wasn’t. An announcement that the bank has been fined hundreds of millions of pounds for the dishonest manipulation of the interest rates is imminent.

This corrupt trading took place for a number of years until 2010. It involved the now notorious Libor, the rate at which banks lend to each other, which had become a benchmark in financial markets. In other words, from 2008 to 2010 taxpayers were unwittingly financing an enterprise that was in part fraudulent. Believe it or not, the bank’s board says it was unaware of what was going on until told by regulators in 2011. There are none so blind as those who cannot see.

This is an extremely serious situation. It is one thing for taxpayers to have to bail out banks for years of reckless overtrading that was on a scale sufficient to bring down the whole financial system, it is quite another to find that, in one bank at least, some of the bad practices went on unchecked after the rescue.

Finding the cash

RBS is preparing its response. So should we. Public discussion of the matter before the announcement might make a difference whereas comment afterwards rarely changes things. The bank will need to answer two questions. Should the fine, which could be as much as £500m – perhaps much more – come out of shareholders’ funds, which is to say taxpayers’ funds, and if not, where could the money be found? And who should carry responsibility for the disaster? As it happens, boards of directors generally find it easier to handle financial liability than they do to apportion blame.

The obvious place to look for the funds required to pay the fine is the bonus pool, sums of money that executives are expecting to be added to their salaries for 2012. The pool is believed to amount to some £375m. Even that large figure might not cover the whole fine, but it would be a start. To many RBS managers, who had nothing whatever to do with the Libor scandal, this would seem very unfair. Which is why, presumably, leaks from the bank suggest that only some £150m of the bonus pool is likely to be used in this way. It would be even more unfair, however, for the fine to come out of taxpayers’ pockets.

Even so, the RBS board might respond, it would not serve shareholders’ interests if the total removal of bonuses for 2012 was to lead to the loss of talented staff. Actually, I would view this risk with equanimity. Large numbers of bankers have been made redundant in the past 12 months and there are further cuts to come. It would be relatively easy to make good staff losses. To me, then, the conclusion is clear: the whole of the 2012 bonus pool should go towards paying the fine.

As to taking responsibility for the fiasco, there are already indications that the board is seeking to apply the noxious rule that whatever goes wrong, the board is never to blame. It floats above things, it cannot see how business is handled on the ground, its eyes are fixed on far horizons. How often have various parliamentary committees heard this tale? Bob Diamond, the former chief of Barclays, gave a masterclass in “not knowing”.

Who jumps?

So, true to form, leaks suggest that the RBS board is considering whether two non-board members – the head of the investment bank and his deputy – should depart. Neither had any involvement in the Libor affair, but apparently they may be forced to bear responsibility for the abuses perpetrated by more junior bankers. This is wrong. The board has an audit committee that has a duty to review the “controls and procedures established by management for compliance with regulatory and financial reporting requirements”.

The board also has a risk committee, which is charged with “providing oversight and advice to the Board in relation to current and potential future risk exposures” of the bank. Either one of these committees should have made it its business to enquire whether the bank was trying to manipulate Libor dishonestly. After all, they were on notice that something could be wrong. On 29 May 2008, The Wall Street Journal had published a study suggesting that banks might have understated borrowing costs they reported for Libor during the 2008 credit crunch. And in September 2008, a former member of the Bank of England’s Monetary Policy Committee, Willem Buiter, described Libor as “the rate at which banks don’t lend to each other”, and called for its replacement.

So I find it obvious that some board members should depart along with the head of the investment bank and his deputy. Any current member of the board who sat on either the audit committee or the risk committee while the events that led to the imposition of the large fine were taking place should also walk the plank.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Deputy Education Manager

Negotiable: Randstad Education Sheffield: Deputy Education Manager (permanent ...

Science Teacher Urgently required for October start

£6720 - £33600 per annum: Randstad Education Nottingham: We are currently recr...

ICT Teacher

£120 - £130 per day: Randstad Education Group: We are looking for an outstandi...

Art & Design Teacher

£120 - £130 per day: Randstad Education Group: We are looking for an outstandi...

Day In a Page

Read Next
Lightning over central London as major storms kept the city awake overnight  

The less we hear about a project to predict the unexpected, the better

Oliver Wright
 

This ‘school in the clouds’ teaches us a valuable lesson about learning

Andrew Buncombe
'I’ll tell you what I would not serve - lamb and potatoes': US ambassador hits out at stodgy British food served at diplomatic dinners

'I’ll tell you what I would not serve - lamb and potatoes'

US ambassador hits out at stodgy British food
Radio Times female powerlist: A 'revolution' in TV gender roles

A 'revolution' in TV gender roles

Inside the Radio Times female powerlist
Endgame: James Frey's literary treasure hunt

James Frey's literary treasure hunt

Riddling trilogy could net you $3m
Fitbit: Because the tingle feels so good

Fitbit: Because the tingle feels so good

What David Sedaris learnt about the world from his fitness tracker
Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Second-holiest site in Islam attracts millions of pilgrims each year
Alexander Fury: The designer names to look for at fashion week this season

The big names to look for this fashion week

This week, designers begin to show their spring 2015 collections in New York
Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

'I like Orwell's writing as much as the next talented mediocrity'

Will Self takes aim at Orwell's rules for writing plain English
Meet Afghanistan's middle-class paint-ballers

Meet Afghanistan's middle-class paint-ballers

Toy guns proving a popular diversion in a country flooded with the real thing
Al Pacino wows Venice

Al Pacino wows Venice

Ham among the brilliance as actor premieres two films at festival
Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

Neil Lawson Baker interview

‘I’ve gained so much from art. It’s only right to give something back’.
The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering