As the theatre that is the clinical analysis of the Co-op Bank, as it lies in intensive care, continues, the one lesson that we should have learned from the 2007/8 banking crisis continues to elude us.
That basic lesson – that we must not allow systemically important institutions to be too big to fail – has created such a culture of caution, that even a relatively systemically unimportant bank such as the Co-op, is continuing to occupy more time than is really appropriate.
The hearing by the Treasury select committee into Project Verde is a painful, humiliating example of regulatory failure and executive incompetence.
Never before have the captains of industry been held to account in such a way, and never before has their ignorance been exposed in such a naked fashion.
In his evidence, Barry Tootell, the former head of the troubled bank, who left in May after a write down by Moody’s, the ratings agency, tried his best to convince the committee that there were no financial black holes when they attempted to buy the 600 odd Lloyd’s TSB branches. He failed.
As the committee’s chairman Andrew Tyrie told him, the bank’s capitalisation was such that even a ‘puff’ of wind could have blown it over.
Mr Tootell told the MPs that the bank’s core tier-one capital of 9.2 per cent was sound and that what pushed it over the edge were the possible liabilities for alleged mis-selling of payment protection insurance, and the poor quality of mortgage loans taken on board with the take-over of Britannia Building Society.
Two things about this, particularly after the Northern Rock debacle: did the Co-op carry out due diligence, if so how did this financial black hole get under the radar? And, with an alert City regulator, especially so after the roasting it got after the poor supervision and regulation of Northern Rock, how did this one get away?
Mr Tootell did admit that the bank’s capital position worsened in 2012, which they had planned to remedy by selling the insurance business.
He also suggested that the former Financial Services Authority, which even its successor body the FCA is fighting to distance itself from, gave full approval to the Britannia merger.
If that is correct, and there is no reason why it is not, then we the public want names: who were the individuals who carried out the due diligence, who signed on the dotted line.
The elephant in the room, however is the former chief executive of the disastrous FSA, Hector Sants, who was knighted for services to financial services.
The Britannia/Co-op Bank merger went through in July 2009, two years after Sir Hector took up his chief executive role and three years before he left. Should the buck stop with him?
In any case, surely, had this been reported to the FCA/PRA, then that should have put the breaks on the proposed purchase of the Lloyd’s Banking Group branches, at the very least, if not pull the plug all together. Again, the regulators took their eyes off the ball.