HBOS report: execs face ban over Bank's collapse

The review into the failure of HBOS has concluded that "ultimate responsibility for the failure of HBOS rests with the Board and senior management".

Related topics:  Finance News
Rozi Jones
19th November 2015
bank of england boe

The report argues that they failed to set an appropriate strategy for the firm’s business and failed to challenge a flawed business model which placed inappropriate reliance on continuous growth without due regard to risks involved.

However, the report says that another 'striking feature' of HBOS’s failure is how the FSA did not appreciate the full extent of the risks HBOS was running and did not take sufficient steps to intervene before it was too late.

This, the report argues, gave rise to a risk assessment process that was too reactive, with inadequate consideration of strategic and business model related risks, and too much trust being placed in the competence and capabilities of firms’ senior management and control functions, with insufficient testing and challenge by the FSA.

In a separate report, Andrew Green QC recommends that the PRA and FCA should now consider whether any former senior managers of HBOS should be the subject of an enforcement investigation with a view to prohibition proceedings.

He argues that the FSA gave no proper consideration to the possibility of investigating any additional individuals including other members of the Board at the date of failure, such as the CEO and Chairman, even though it was apparent to the FSA that there had been significant problems within the failed bank extending beyond the Corporate Division (including problems in the International and Treasury Divisions, and with the reliance on wholesale funding).

The failure of HBOS was blamed on:

- Its Board lacking sufficient experience and knowledge of banking

- A flawed and unbalanced strategy and a business model with inherent vulnerabilities arising from an excessive focus on market share, asset growth and short-term profitability

- Executive management pursuing rapid and uncontrolled growth of the Group’s balance sheet

- The Board failing to challenge executive management in pursuing this course or to ensure adequate mitigating actions

- An overall systemic crisis in which the banks in worse relative positions were extremely vulnerable to failure

Andrew Bailey, Deputy Governor of the Bank of England, CEO of the PRA and Accountable Executive for the HBOS Review, said:
 
“The story of the failure of HBOS is important both to provide a record of an event which required a major contribution by the public purse, and because it is a story of the failure of a bank that did not undertake complicated activity or so-called racy investment banking. HBOS was at root a simple bank that nonetheless managed to create a big problem.”

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