Leading article: These bankers must explain their disastrous decisions

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

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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.

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