Treasury committee reports on failure of UK banks

May 5, 2009 at 12:10 pm 1 comment

The Commons Treasury Committee has released its report: Banking Crisis: dealing with the failure of the UK banks.

It examines the multiple causes of the failures in the country’s banking system and the government’s response.

“A culture of easy reward, illustrated by risky lending of credit and capital, has been underpinned by an assumption of continuous expansion in banking accompanied by an expectation of ever bigger bankers’ rewards,” the report concluded.

“Bankers complicated banking to the point where the location of risk was obscured, abandoned time-honoured principles of prudent lending and failed to manage their funding requirements appropriately.

“There were major failures in the modelling, procedures and structures for risk management.

“They did this in a reckless environment, and one in which their corporate governance was often totally ineffective.

“Whilst we would hope that the nature of banking, and bankers, would change in response to the crisis, and no doubt
bankers will be chastened by recent experience for a short while, the responsibility falls to the financial regulator, the FSA, to create a more durable framework for stable finance.”

Labour MP John McFall, Chairman of the Treasury Committee, said:

“We have experienced a comprehensive failure of the banking system at all levels.

“The banks have failed to govern themselves effectively: senior managers failed to understand the investments being made in their name; risk management and due diligence were seemingly ignored; and the non-executive directors, often eminent and hugely experienced individuals, failed in the proper scrutiny of the banks’ activities.

“Governments, politicians, regulators and central bankers in the UK and across the world also share a responsibility for sustaining the illusion that banking growth and profitability would continue for the foreseeable future.

“Today’s report looks both at the origins of the crisis and the steps the Government has taken to resolve it so far.

“Whilst we would hope that the nature of banking, and bankers, would change in response to what has happened, the responsibility also falls on the regulator to create a more durable framework for finance in the future. Rewards for failure must not be repeated.

“We will address this and other aspects of regulation in forthcoming reports.”

While broadly supportive of the government’s action to secure banking in the UK, the committee expressed “concern” about its objectives, “especially with regard to the part-nationalised banks.”

“For example, there is an inherent conflict between ensuring that the banks maintain high capital ratios, protecting the taxpayer interest and wanting the banks to increase lending levels.

“This tension was demonstrated by the Government’s initial decision to charge a 12% coupon on its preference shares which may have adversely impacted on the ability of the part-nationalised banks to increase lending levels.

“To this end, there is a pressing need for the Government to clarify its strategic objectives and priorities with respect to the part-nationalised banks as well as towards other banks who are also facing conflicting pressures from Government.”

Click here to read the full report (PDF format)


Entry filed under: Committees, Commons. Tags: , , , .

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1 Comment Add your own

  • 1. banking  |  May 5, 2009 at 1:04 pm

    I think it’s due to the policies of the banks, they want to change it.


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