- Capital: Keeping RBS lightly capitalised in order to maintain an "efficient" balance sheet.
- Funding: Adopting a business model that was highly dependent on wholesale funding and therefore choosing to run with a high level of liquidity risk.;
- Lending: Expanding commercial real estate lending with inadequate monitoring and mitigation of concentration risk.
- Asset allocation: Rapidly increasing lending in a number of other sectors which subsequently gave rise to substantial losses, eroding RBS’s capital resources.
- Structured credit: Expanding the structured credit business in 2006 and early 2007 when signs of underlying deterioration in the market were already starting to emerge.
These are first-level errors, but they point to underlying factors that made them systemic. The FSA inquiry went beyond board minutes, pursuing through interviews and other means to reach a view about how the culture, management and governance led to such a catastrophic situation. It does not make happy reading, especially for a bank that nominally complied with pretty much all the demands of the UK Combined Code.
"The FSA announced in December 2010 that, in the context of its enforcement work:
"However, it is important to note that this conclusion was reached in the context of whether there was a basis for the FSA successfully to bring an enforcement case in relation to the issues that were investigated," the FSA continues. "It should not be regarded as providing a positive assessment by the FSA of the general quality of corporate governance at RBS during the Review Period." Perhaps that's another sign of the failings at the FSA.
Source document: The index page for the report provides links to a section-by-section breakdown as well as the full 452-page document.