Leading article: These bankers must explain their disastrous decisions

Today's hearing is an opportunity to shine some light on banking failures

Related Topics

The wheels of accountability seem to turn rather slower here in Britain than elsewhere. It is a full three months since Dick Fuld, the former head of the American investment bank Lehman Brothers, was called to appear before a Congressional committee to explain why his bank failed so spectacularly.

And yet it is only today that Mr Fuld's British counterparts, Sir Fred Goodwin and Andy Hornby, from The Royal Bank of Scotland and Halifax Bank of Scotland respectively, will give an account before our own Parliament of why their institutions were driven to the brink of bankruptcy. The chairmen of RBS and HBOS, Sir Tom McKillop and Lord Stevenson, will also be called upon to give evidence to the Treasury Select Committee hearing. The delay is an embarrassment. But the reckoning comes better late than never.

The facts surrounding the downfall of HBOS and the near demise of RBS are well established. And so is the professional failure of the four individuals who will give evidence. The bottom line is that their banks failed. Shareholders have been almost wiped out. Worse, these institutions had to be effectively rescued by the state, forcing taxpayers effectively to underwrite billions in liabilities. There seems little that today's session can add in respect of this lamentable narrative.

The priority for the committee and its chairman John McFall must be to get an explanation from these individuals of their behaviour when the storm broke. Both RBS and HBOS launched rights issues last year, tapping their existing shareholders for more capital. This was justified as an emergency and one-off measure. Yet this capital raising was followed by heavy asset write downs and a share price collapse. Did management know what was coming when they made their appeal for more cash from shareholders?

The committee can then perform a valuable public service by establishing what these individuals actually thought they were accomplishing in the years leading up to the meltdown. This is where the committee might profitably get into specifics. Sir Fred ought to be asked why he pushed on with the £10bn acquisition of ABN Ambro in 2007. It has since emerged that the Dutch bank was stuffed with bad loans. Did Sir Fred perform due diligence on his new acquisition? Did he consider the risks of expanding when the economic cycle was obviously turning? As for Andy Hornby, the central question he needs to answer is why HBOS bought up billions of pounds of mortgage-backed securities whose value was dependent on the US sub-prime housing market. How much did he know about the original loans on which the value of these assets was based?

The Treasury committee might also fruitfully inquire into the area of regulation. Both RBS and HBOS were effectively running off-balance-sheet banks to raise short-term loans. Was this a deliberate effort to evade regulatory requirements on capital? As for Sir Tom and Lord Stevenson, they need to explain what they knew about the decisions being made by their chief executives. What exactly was their function as chairmen?

No matter what these former titans of finance say it will not rescue their reputations. But their testimonies can nevertheless shed some light on what has befallen our banking sector. Such a reckoning is crucial for our economic future. It is also vital for our democracy. We need to know as much as possible about how this disaster occurred if we are to entertain any hope of preventing it happening again.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Recruitment Genius: 3rd Line Virtualisation, Windows & Server Engineer

£40000 - £47000 per annum: Recruitment Genius: A 3rd Line Virtualisation / Sto...

Recruitment Genius: Refrigeration and Air Conditioning Service Engineer

£26000 - £35000 per annum: Recruitment Genius: A successful national service f...

Recruitment Genius: Business Development Executive / Sales - OTE £25,000

£15000 - £25000 per annum: Recruitment Genius: This is an opportunity to join ...

Recruitment Genius: Sales Administrator - Fixed Term Contract

£17500 - £20000 per annum: Recruitment Genius: We currently require an experie...

Day In a Page

Read Next
Army reservist Corporal James Dunsby  

Whether it’s in the City, the Army or at school, this ritual sadism has to stop

Chris Blackhurst
Caitlyn Jenner, the transgender Olympic champion formerly known as Bruce, unveiled her new name on Monday  

'I'm the happiest I've been for a long time and I finally know where I fit': Here's why role models matter for trans kids

Susie Green
Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific