RBS boss says reforms have lowered failures
(25 August 2010 – Global) The chief executive of state controlled lender Royal Bank of Scotland has said that failures in the troubled banking sector will be ‘significantly’ lower as a result of global reforms.
Regulators have increased banks capital ratios, a key measure of core capital set against outstanding assets, to strengthen banks’ foundations and help prevent another global financial crisis.
Stephen Hester, CEO, Royal Bank of Scotland argued earlier this week that bank capital ratios are now much stronger post global financial crisis.
The extensive reforms to capital, liquidity and risk now under way will significantly reduce the probability of failure but rightly not remove its possibility, Mr Hester said at the annual conference of the European Economic Association.
Mr Hester noted that the essential complement is to ensure that financial institutions can be safely resolved and if bailed out, by shareholders and creditors, not the state.
The British government now owns 83-percent for Royal Bank of Scotland after the lender was rescued in the world's biggest bank bailout at the height of the economic turmoil.
The bank’s top boss blamed recent banking failures on inadequate risk controls, management failures and an over dependence for funding on the wholesale markets.
Mr Hester did however add that potential failure was an important factor for the market to function properly.
It is important to the proper functioning of the market that we do not remove that possibility of failure -- that would embed entirely the wrong incentives around risk-taking, Mr Hester added.
Mr Hester also highlighted that the next, and in many ways the most difficult step, then, is to ensure that banks can fail but in ways that minimise the impact of that failure on the wider economy.
Stephen Hester, CEO, Royal Bank of Scotland argued earlier this week that bank capital ratios are now much stronger post global financial crisis.
The extensive reforms to capital, liquidity and risk now under way will significantly reduce the probability of failure but rightly not remove its possibility, Mr Hester said at the annual conference of the European Economic Association.
Mr Hester noted that the essential complement is to ensure that financial institutions can be safely resolved and if bailed out, by shareholders and creditors, not the state.
The British government now owns 83-percent for Royal Bank of Scotland after the lender was rescued in the world's biggest bank bailout at the height of the economic turmoil.
The bank’s top boss blamed recent banking failures on inadequate risk controls, management failures and an over dependence for funding on the wholesale markets.
Mr Hester did however add that potential failure was an important factor for the market to function properly.
It is important to the proper functioning of the market that we do not remove that possibility of failure -- that would embed entirely the wrong incentives around risk-taking, Mr Hester added.
Mr Hester also highlighted that the next, and in many ways the most difficult step, then, is to ensure that banks can fail but in ways that minimise the impact of that failure on the wider economy.
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