A striking feature of Hbos’s failure is how the FSA did not appreciate the full extent of the risks the bank was running and did not take sufficient steps to intervene before it was too late, a report concluded today.
In a 407-page report published by the PRA and FCA today (19 November), it is stated the FSA board and executive management failed to ensure that adequate resources were devoted to the supervision of large systemically important firms such as Hbos.
According to the report this failure gave rise to a risk assessment process that was too reactive, with inadequate consideration of strategic and business model related risks.
The report also concluded the FSA has insufficient focus on the core prudential risk areas of asset quality and liquidity in a benign economic outlook; and placed too much trust in the competence and capabilities of Hbos senior management and control functions.
Insufficient testing of Hbos management and challenges were carried out by the FSA, the report adds.
However despite listing many areas where the FSA failed in their supervision of Hbos, the report concluded ultimate responsibility for the failure of the mortgage lending giant rests with the bank’s board.
The demise of Hbos resulted in £20.5bn of taxpayer’s money being required to bail the bank out.
The report states: “Supervisors need to employ their judgement and take appropriate actions in response where necessary.
“A particular challenge is to intervene sufficiently early when a firm is apparently successful but supervisors can identify weaknesses that are sufficiently important to pose a threat to the firm that is inconsistent with the objectives of supervision. Hbos was such a firm.”
Today’s report comes after several years of delay.
As far back as 2012 the Financial Services Authority promised to publish a document into the demise of Hbos ahead of its division into the Financial Conduct Authority and Prudential Regulation Authority.
The following year Andrew Tyrie, chairman on the Treasury select committee, appointed the special advisers to oversee the report demanding it give a full and frank account of the bank’s post-crisis collapse.
By 2014 the promise was that the findings would be available by the end of the year, but as late as this summer there was still no firm date for its publication, with Mr Tyrie expressing his frustration at the delays.
In July, he stated: “Once the review has concluded, I will be asking the Treasury committee’s independent reviewers to give the committee their views on the reasonableness or otherwise of these delays in the process.”
Today’s report is far from being the first into the demise of Hbos.
Back in 2013, James Crosby, former chief executive of Halifax Bank of Scotland, was stripped of his knighthood after he was described by MPs as the “architect” of the collapse of HBoS, in a highly-critical report published by the Parliamentary Commission on Banking Standards.
The parliamentary report also highlighted failings by Mr Crosby’s successor Andy Hornby and chairman Lord Stevenson.