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Royal Bank of Scotland (FSA Report)

Volume 537: debated on Monday 12 December 2011

With permission, Mr Speaker, I should like to make a statement.

Today the Financial Services Authority published its report on the failures that led to the near collapse of the Royal Bank of Scotland. It is a thoroughly detailed report, listing a catalogue of management and regulatory failures that almost felled one of the world’s largest banks. Given the billions of pounds of taxpayers’ money that was needed to bail out the bank, not once, but twice, and for a total sum of £45 billion, it is right that taxpayers are told the full story.

It is fair to say that the report makes for depressing reading. For the shadow Chancellor, it is as damning as it is depressing. The report lays bare the gross failures of the regulatory regime that was devised and driven by the shadow Chancellor and his party.

It is now well known that the tripartite system set up by the previous Government failed spectacularly in its mission to maintain stability. The decision to divide responsibility for assessing systemic financial risks between three institutions meant that in reality no one took responsibility. As the report laments, the FSA was solely responsible for the entire range of financial regulation issues, from the prudential soundness of major systemically important banks, to the conduct of some 25,000 financial intermediaries.

The failure of regulatory culture was equally significant as the failure of institutional design. The report says:

“What was wrong in the case of RBS was the FSA’s overall approach to prudential supervision, rather than the execution of this approach in relation to RBS.”

More than that, the report says that it was an approach that

“responded to political pressures for a ‘light touch’ regulatory regime.”

The report singles out the shadow Chancellor as one of the three senior Labour politicians who were responsible for this “sustained” pressure. It quotes his first speech as City Minister in which he said

“nothing should be done to put at risk a light-touch, risk-based regulatory regime.”

It was political dogma at the cost of prudential regulation, and it left us hamstrung with a complacent regulator, powerless against the risks in the financial system. It meant that the FSA failed sufficiently to challenge RBS management over its decisions, and was over-reliant on the firm’s own assessment of its position. Rather than exercising judgment and foresight, the FSA adopted a tick-box and reactive approach to regulation.

Left to its own devices, without proper regulatory oversight, RBS got away with some of the most shocking decisions taken by any bank in the years and months leading to the crisis in late 2008. Poor judgment was fostered by a style of management and governance that promoted a culture of aggressive risk-taking over prudence. That was most clearly demonstrated by RBS’s decision to grow its investment bank by aggressively expanding its structured credit and leveraged finance activities. That build-up of risk was compounded by RBS’s relentless pursuit and purchase of ABN AMRO. The current chairman of RBS said that the acquisition was

“the wrong price, the wrong way to pay, at the wrong time and the wrong deal.”

As the House is aware, it was the losses in the RBS investment banking arm that crippled the entire bank. As the credit trading losses mounted, the bank’s excessive reliance on short-term wholesale funding and its weak capital position were brutally exposed, and led to its near collapse.

The British economy is still recovering from the near collapse of RBS and the wider financial system just three years ago. Recovering from that crisis is this Government’s No.1 priority. We simply cannot afford a repeat of it, which is why we have embarked on fundamental reform of our regulatory system. As the House is aware, the Government are legislating fundamentally to reform the failed tripartite system. We are establishing a permanent financial policy committee inside the Bank of England. Its job will be to monitor overall risks in the financial system, identify bubbles as they develop, spot dangerous interconnections and stop excessive levels of leverage before it is too late. It is exactly the kind of judgment and foresight that we needed in the years preceding the last crisis.

We are also abolishing the Financial Services Authority in its current form, and creating a new Prudential Regulation Authority with a focus on micro-prudential regulation. Prudential regulation of banks will go back to where it belongs, under the auspices of the central bank, as a subsidiary of the Bank of England, bringing micro and macro-regulation under one roof.

The PRA will be a focused, expert regulator. Whereas the FSA was responsible for thousands of financial services firms, the PRA will focus exclusively on the prudential regulation of deposit-takers, insurers and investment banks. And when regulating banks, it will have the single statutory objective of promoting safety and soundness. Responsibility for the protection of consumers and the conduct of financial services firms will transfer to the new Financial Conduct Authority, leaving the PRA free to focus first and foremost on stability.

We are also working closely with the FSA and the Bank of England to ensure that the new PRA has the powers that it needs to ensure that banks do not take excessive risks and that directors who act improperly face appropriate penalties. We will consider carefully the further recommendations made in the report, particularly Lord Turner’s suggestion that it should be made easier for action to be brought against the directors of failed banks.

I share the frustration of many Members that it has not been possible to bring action against those responsible for the failures at RBS, but strengthening legal powers in this area would raise some complex issues, and we will want to reflect carefully and listen to a range of views before deciding on any action.

The report into the failure of RBS fully complements our analysis of the faults of the previous regime and supports our wider reforms to the banking system. We will respond to the recommendations of the Independent Commission on Banking next Monday. We have already said, though, that we support in principle not only a ring fence around better-capitalised high street banks to protect them against investment banking losses but, when things go wrong, a bail-in of private investors, not a bail-out by taxpayers. Together with recovery and resolution plans, that means that we are working to ensure that banks can fail in an orderly fashion without any recourse to taxpayers’ money.

We will not make the same mistakes as the previous Government but will ensure that we have a system of regulation that secures our financial stability while protecting our competitiveness, and we have already made substantial progress in that ambition. I welcome the action already taken by the FSA to strengthen its supervisory capacity, to become a more intensive and intrusive regulator and to improve its ability to ensure that banks are well governed.

We continue to lead the international debate to impose higher capital requirements and tougher funding standards on banks across the globe, and we will resist any attempt to unpick Basel III in Europe. With the world focused on the strength of bank balance sheets, this is not the time to pander to vested interests. We will ensure that Basel III is implemented in full and that we can go further to impose higher capital standards where necessary to meet risks unique to our sector.

We know that the financial sector will continue to be a critical part of our economy and our recovery, and we are committed to supporting the sector and protecting the open and competitive markets that have allowed the sector to flourish in the UK, but that success cannot come at a cost to the wider economy. That means getting the structure and substance of regulation right and correcting the mistakes of the previous Government.

Today’s report reminds us of the gross failures of the previous regime and the previous Government. This Government will not repeat those mistakes. We will reform the regime to preserve the innovation that fuels the sector’s success without putting the wider economy at risk and to build a successful but stable financial services sector. I commend this statement to the House.

The report confirms that there was institutionalised dysfunction at the heart of the Royal Bank of Scotland and confirms what we all know—that there was a collective failure of regulation not just in Britain but around the world, and that there were failures not just of one individual, institution, political party or Government but failures that allowed irresponsible bankers to take excessive risks and cause a global financial crisis.

Labour Members have accepted our responsibilities, and as my right hon. Friend the shadow Chancellor said, for the part that the previous Government played in that global regulatory failure, we are deeply sorry. Acknowledging our part in those global failings is the right approach to take, so let me ask the Minister: does he accept that the Conservatives got it wrong too? During the 2007 debates on Northern Rock, he beseeched the Treasury

“to counter the pressure for greater regulation”,

and talked of

“the strength of our regulatory regime”

and how it was

“vital that this crisis does not erode that standing”.—[Official Report, 12 December 2007; Vol. 469, c. 391.]

It would be unparliamentary to call the Minister a hypocrite but perhaps he needs some medical advice about his selective amnesia. Let us have some contrition from the Conservative party, which never once called for more regulation or criticised the FSA for not having enough powers. In fact, it argued precisely the opposite. The Chancellor of the Exchequer, who is sitting on the Front Bench, complained constantly of burdensome and complex regulations.

The FSA is clear that there was a collective failure, but there was also clarity about how the regulator was at fault. Specifically, the report says that the monitoring of RBS’s capital position was “reactive”, and that “supervision of liquidity” was a “low priority”. The FSA did not scrutinise the trading book or loan impairments adequately, and the takeover of ABN AMRO was not questioned sufficiently. Can the Minister say, first, whether the FSA had the co-operation of all former RBS directors, and whether they were all interviewed? His statement was somewhat vague about action against those responsible—he says that he will reflect carefully. Can we take it then, reading between the lines of his statement, that the Government will not pursue action to disqualify former RBS directors from sitting on other company boards?

Secondly, the Minister says that he will “consider” tough action to ensure that bankers who jeopardise the solvency of our retail banks cannot escape responsibility. There should be a new strict liability requirement specifically for banking directors. If the Minister does not amend the draft Financial Services Bill to achieve that, we will table amendments to that effect. The report suggests that future bank takeovers should require formal approval by the regulator, which was not required when RBS took over ABN AMRO. That is sensible, so can the Minister say whether he will amend the draft Bill accordingly?

Thirdly, will the Government take steps to strengthen the corporate governance of large public companies, including banks? Regulators have to do a better job, but shareholders also need to be able to exert their authority. Fourthly, will the Minister agree to implement the legislation already approved in law to publish the pay deals of everyone working in the banking sector earning more than £l million? The Government have dragged their feet on this issue. A simple signature to a statutory instrument is all that is needed. Surely it is important to have transparency and accountability for all the high earners in the banks, not just the richest eight in each bank, as he has conceded so far.

Fifthly, the report highlights a culture of incentive fees for City advisers, whose rewards are greatest if large takeovers are completed. The report recommends ending that bias in the advisory fee structure. Why did the Minister ignore that recommendation in his statement? Does he agree that the proposal would make good sense? The FSA and the Government did not see the financial crisis coming, but neither did the Bank of England. Is the Minister certain that putting all the new regulatory powers in the hands of the Bank will work? Is there a risk that the accountability of the Bank of England—an important point—is substandard in his current proposals? Will he accept the suggestions from the Select Committee on the Treasury and others that those safeguards need to be significantly enhanced?

We of course support moves to enhance prudential regulation, but there is always a danger of fighting the last battle, especially when there could be a eurozone credit crunch just around the corner, so is the Minister not taking his eye off the ball? Will he acknowledge that the new European supervisory structures are incredibly powerful and that, by mishandling negotiations in Europe so badly, the Government have jeopardised our ability to influence and steer those European regulations, which can overrule the tougher capital buffers for our banks, as suggested by the FSA here in Britain?

The regulators did not do enough, and we have to learn lessons. However, ultimate culpability rests on the shoulders of the bankers involved. It is astonishing that deeply irresponsible decisions by those bankers should have forced a £45 billion bail-out, and yet no enforcement action is brought and nobody is punished. It is about time that this Government stopped pandering to the big banks and took action to speed up banking reform and rein in the excessive bonus culture.

The approach taken by the hon. Gentleman, who seeks to try to blame everybody for the crisis, overlooks the key role that the shadow Chancellor—who is not in his place today—played in the design of the regulatory system that led to the problems we saw at RBS. That design—driven by the shadow Chancellor, who took great credit for it—meant that no backstops were in place when RBS took those decisions.

The other point that the hon. Gentleman should bear in mind is that only three politicians are named in the report as having put pressure on the FSA to adopt a light-touch regulatory regime. One was Tony Blair, one was the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), and the third one—the person who is missing from the Opposition Front Bench today—is the shadow Chancellor, the person who in his first speech as City Minister called on the FSA to adopt a light-touch regulatory regime, a regime that, when confronted with the challenge of RBS, turned from a light touch to a soft touch. It is, of course, the taxpayer who has picked up the bill for the fundamental flaws in Labour’s regulatory regime.

The hon. Gentleman talked about disqualification of RBS directors. It is a pity that the previous Government did not think about that issue in the aftermath of the financial crisis. My right hon. Friend the Secretary of State for Business, Innovation and Skills has referred the report to counsel to see whether it is possible to disqualify the directors of RBS.

The hon. Gentleman talked about approval for acquisition. We will look carefully at the proposal Lord Turner made, but the reality is that the FSA had powers to intervene, but chose not to use them—partly as a consequence of the light-touch regime foisted on them by the previous Government.

When the hon. Gentleman talks about bonuses, let us not forget that it was under the previous Government that bonuses could be paid out in cash and taken straight away. Under the regime in place now, bonuses are deferred, paid out in shares and can be clawed back. Let us not forget that the moment that it was possible to exercise the maximum leverage on Sir Fred Goodwin—the banker Labour knighted—was the moment when it gave away his pension scheme. So I will take no lessons from the Labour party on the way in which we should deal with the problems of RBS.

The hon. Gentleman referred to the Bank of England and seemed to question whether it was able to take on the additional responsibilities. I thought he was moving away from his party’s position of supporting the package of reforms that we have put forward. Let me remind him that it was the Bank of England that identified the problem of the mispricing of risk in the financial markets. The problem was that the regulatory structure it had to deal with meant that the Bank did not have the power to tackle the problem—nor, indeed, did the FSA. What we are faced with is a problem of dealing with the regulatory regime left to us by the previous Government. They chose not to make these reforms when they were in government; we are taking action now to ensure that we have the right regime in place to tackle those risks and ensure that we have a stable, but successful, financial services sector.

Powerful institutions do not leap forward to explain themselves when they make mistakes, and neither did the FSA. The fact is that the almost 500 pages of this report would never have been written had it not been for the unremitting pressure from the Treasury Select Committee. I would like to thank my colleagues on that Committee for helping me to secure this report from the FSA. Furthermore, to make sure that the report was of adequate quality, we took the unprecedented step of sending our own specialist Committee advisers into the FSA with full powers to examine papers and personnel in order to check that the papers underlying the compilation of this report were fairly reflected in it.

Is it not now crucial that the new regulators—the Bank of England and the Financial Conduct Authority—are subjected in future to far more vigorous parliamentary scrutiny than the FSA has been in the past? Will the Government commit in the draft legislation to secure a much higher level of parliamentary scrutiny of these powerful quangos than we have had hitherto?

I, too, commend the work of my hon. Friend and his Select Committee, along with the work done by Bill Knight and Sir David Walker in scrutinising the FSA’s report and making consequent improvements to it. One of the challenges we face is, as my hon. Friend said, to ensure that there is proper scrutiny. He commented on the fact that it took the pressure of his Committee to produce this report. The reality is that the existing powers in section 14 of the Financial Services and Markets Act 2000 to require a report to be produced where there is regulatory failure have never been exercised. One measure we have put in place in the Bill is to enable such reports to be produced on a more regular basis—not at a Minister’s request but in response to objective triggers to ensure that reports are published in a timely fashion so that we can learn the lessons from past mistakes. I think that is a helpful way of enabling Parliament to hold the regulators to account. We look forward shortly to responding not just to my hon. Friend’s Select Committee report, but to that of the pre-legislative scrutiny Committee.

Is the position of Hector Sants at the Bank of England still credible following the report, and does the Minister agree that it would not be tenable for anyone connected with the FSA to replace Sir Mervyn King as the next Governor of the Bank of England?

As the hon. Gentleman will know, RBS was regulated by the retail division of the FSA, while Hector Sants was managing director of the wholesale division. He took charge of the FSA about three months before the ABN AMRO acquisition, and one of the things on which he should be commended is the way in which he has led its implementation of a more intrusive and intense programme of supervision. I think that that has yielded dividends during the last two or three years, and that it is an important part of his record that we should recognise.

The Government’s proposed new regime will be judgment-based, not rule-based, and will therefore require banking supervisors of much higher quality than we have seen hitherto. What steps will the Financial Secretary take to ensure that such people are in place under the new regime?

My hon. Friend is right to recognise that the quality of supervision needs to be higher than it was in the pre-crisis days. The need for much more engagement by better qualified banking supervisors is a priority not just for the FSA but for the Bank of England, which will be introducing measures for precisely that purpose.

The Minister said that the FSA had failed to challenge the RBS management sufficiently over its decisions. That is a masterful understatement. In October 2007 the FSA had precisely four and a half staff in RBS: half a manager and four team members. It was possibly the biggest bank in the world, it was systemically important, and its asset base was bigger than the GDP of the United Kingdom. Will the Minister guarantee that, irrespective of the future shape of banking and regulation, the RBS’s successors—the Prudential Regulation Authority and the Financial Conduct Authority—will always have enough of the right people in such systemically important banks, so that we never encounter such a situation again?

That is an important question. I referred earlier to the pressure under which Tony Blair put the FSA to adopt a proportionate regulatory regime. One of the examples put to the then Prime Minister about the light-touch quality of the regime was the fact that there were only six people supervising HSBC, and even fewer have been supervising RBS. I understand that there has been almost a fourfold increase in the number of RBS supervisors, and I think that that is a much better approach. We must ensure that there is intrusive, intensive supervision, and that requires not just more resources, but a higher quality of resources.

I warmly welcome the report. I think that the proposal to debar directors from high office in future should be implemented so that we can ensure that rewards are not received for failure at the top, but will the Minister also consider the proposal to debar others mentioned in the report who were culpable?

I think that we should give careful consideration to the idea of debarring people who have been incompetent and mismanaged their leadership of institutions. That applies to the directors of those institutions, but it may also apply to the politicians who designed the system in the first place.

Let me begin by declaring an interest: my wife and I have both current and deposit accounts with the Royal Bank of Scotland. As one who was always in favour of tougher regulation of banks, I must also confess that I do not recall encountering an organisation before the collapse which could be described as “Tories for tougher banking regulation”.

Will the Minister confirm that the failures extend beyond the area that he has covered? Will he confirm that the auditor, Deloitte Touche Tohmatsu—which received substantial fees—did not seem to notice that there was anything wrong, and that the benighted rating agencies, which keep telling us what should be happening now, gave triple A ratings to both RBS and ABN AMRO right up to the day on which the balloon burst?

The right hon. Gentleman makes some important points, and clearly a number of institutions involved with RBS and the regulatory system more widely should bear responsibility for what happened, but let us be absolutely clear that the principal responsibility for the failure of RBS lies with its management.

I should, first, declare that the global headquarters of RBS is in Gogarburn in my constituency. Today’s report apportions blame for the RBS demise on previous RBS management, insufficient challenge by the FSA and Labour’s light-touch, lip-service regulations; this Government are now dealing with those. Will the Minister join me in recognising that one group not blamed was the tens of thousands of ordinary employees of the bank, who have continued to work in an exemplary way, despite more than 27,000 redundancies and a slump in the bank’s fortunes and share price, which was previously a major element of their benefits package? Does he agree that today’s report is no reflection on them?

My hon. Friend makes an important point. Responsibility clearly rests with the leadership of RBS, not with those working in the bank’s branches, those working at its insurance company and others, who did their job properly and to the highest standards. It is important to recognise that, having identified regulatory issues to address, his party and my party came together in a coalition Government committed to regulatory reform. The Labour party was wedded to the status quo and to the regulatory regime that allowed this to happen unchecked. That party should take its full responsibility, just as we should recognise the excellent work that people at RBS did.

The report makes it clear that the primary responsibility for the collapse of RBS lies with the firm. The shadow Minister was big enough to say what he did about past regulation, and the Minister’s anger would be more credible if he and his party had not continually called for lighter regulation. The Minister had said:

“Effective light-touch, risk-based…regulation is in the interests of the sector globally, and the Government need to send that message more strongly to the US Administration and Congress”.—[Official Report, 28 November 2006; Vol. 453, c. 995.]

The Chancellor had said:

“I fear that much of this regulation has been burdensome, complex and makes cross-border market penetration more difficult.”

If people are going to admit culpability on regulation, the truth is that those on both sides of the House need to look in the mirror. Is that not the case?

It was my party, through the work done by Lord Sassoon, that examined the regulatory system set up by the previous Government, identified some of the challenges and determined that the best thing to do was to reform that system. We have recognised the challenges and the failings of the previous regulatory system, and proposed measures to improve it, and to ensure that it serves consumers and ensures a stable, successful financial services business.

The shadow Minister said that the regulation did not work and the regulator did not do anything sufficiently. Surely the reason for that was because the regulator was put under sustained and unacceptable political pressure by two former Prime Ministers and by the current shadow Chancellor. Will my hon. Friend confirm to the House that this Government, and the Treasury under the stewardship of this Chancellor, would not put such pressure on regulators and that the constitutional convention as to how a Government should work with regulators will be properly observed?

My hon. Friend makes an important point. We have made it clear that we want to give the new regulatory organisations that independence, power, authority, discretion and judgment to get on with their job, so that we ensure that we tackle issues that need to be tackled and ensure that there is tough regulation where that is needed. For example, we are going to introduce powers for the Financial Conduct Authority to ban particular products—a power that has not been available so far. We are prepared to take those tough decisions and let the regulators get on with their job.

One of the features of the RBS takeover of ABN AMRO was that lots of people warned against it at the time, and not just with hindsight—many people in the financial services and elsewhere warned of severe consequences. Was the decision to go ahead with that takeover about not just the role of Sir Fred Goodwin, but the fact that those who were meant to prevent him from doing such things did not do so? Was this not only about a question of regulation, but about a culture of takeover, acquisition, internationalisation and over-ambition which was at the heart of the problems of RBS and other places? What will the Minister’s proposals do to prevent that kind of attitude from affecting future managements and future banks when the current financial crises have passed?

The hon. Gentleman makes some important points. It is important that shareholders play a more active and engaged role in businesses in which they have a holding. My right hon. Friend the Secretary of State for Business, Innovation and Skills has commissioned John Kay to conduct a review of long-term interest in business and business investment. We need to strengthen corporate governance in boards, as they clearly were not sufficiently robust in their challenge to executives. One of the things that has happened in the FSA is that a much more robust approach is being taken to understanding and examining people who want to hold positions of significant influence in our major banks, including those who want to become board members. That is a good way not only of raising the quality of people in the boardroom, but of ensuring that they are robust enough to stand up against a dominant and aggressive chief executive officer.

Will my hon. Friend ensure that the rules allow enforcement action against incompetence? The point being missed by Labour Members is that there are more than 6,000 pages of FSA rules. There is no shortage of rules, but they do not allow enforcement against incompetence; they allow it only against dishonesty. That is what has fettered the hand of the FSA and what angers my constituents, who are aggrieved that individual directors of RBS have not faced sanction.

My hon. Friend makes an important point and he speaks with some experience, having worked with the FSA. We need to look carefully at the fit and proper person test for people becoming registered with the FSA to ensure that they are good quality, and can do the job properly and competently.

I welcome the Minister’s statement. It is right and proper that we review past failures and learn from them, but how can we use the current situation to get the banks to lend to the hard-pressed small and medium-sized businesses crying out for finance they urgently need, especially in Northern Ireland, where credit is particularly squeezed?

The hon. Gentleman makes an important point about the credit situation in Northern Ireland, and I know that the hon. Member for East Antrim (Sammy Wilson) pays close attention to it. We need to ensure that banks are sufficiently well capitalised to enable them to lend to businesses. One of the things that the hon. Gentleman may have noticed from last week’s report from the European Banking Authority is that no UK banks required additional capital, because they are already well capitalised and should be in a position to lend, as was demonstrated by the third quarter Project Merlin figures.

This report is a damning indictment of the decisions taken by the previous Government, so it is regrettable that the shadow Chancellor could not be here to apologise in person to the House and to the country. Does the Minister agree that the something-for-nothing culture allowed to fester under the previous Government is something that this Government will not allow and that they will examine how to shift the dynamic in boards in systemically important businesses so that non-execs are able to challenge powerful CEOs and hold them to account?

My hon. Friend makes an important point, because there was a culture, as documented in the report, that meant that directors on the board of RBS did not challenge the CEO sufficiently robustly. That needs to change. We also need to ensure that the incentive arrangements for directors are robust. Under the previous regime, bonuses could be paid out in cash straight away. Over the past couple of years, tougher rules have been put in place to defer bonuses, to make sure that they are paid in shares and to claw back bonuses where there has been failure. That is a tough regime in place and it should make sure that the incentives of directors are in line with those of shareholders.

What are the issues inhibiting the Minister from making a clear commitment to strengthen legal powers so that action can be brought against directors of failed banks?

I understand the frustration expressed in the hon. Gentleman’s question. We need to look carefully at the proposals in Lord Turner’s report and we will have the opportunity to legislate in the Financial Services Bill, if appropriate, but the hon. Gentleman would not want me to engage in a knee-jerk response to a report that was only published first thing this morning. I want to ensure that we have the right measures in place, whether through company law or regulation, to ensure that we have good-quality people running such organisations.

The report makes it clear that had the Basel III legislation been in place, the AMRO transaction could not have happened. Will the Minister confirm that it remains his intention to implement Basel III as soon as possible and ideally before 2019?

It is our commitment to implement Basel III. We want to ensure that it is implemented consistently across the whole of Europe in capital requirements directive IV and we are pushing for member states to have the freedom to go further and raise capital standards when they believe it is in their interests to do so. We want to see tougher regulation of banks and that requires better and more capital and better and more liquidity.

The FSA’s report mentions three Ministers in the previous Government who applied sustained political pressure to give a light touch, shall we say, to the regulation. Can my hon. Friend tell me who they were?

It is interesting, is it not? It is not often that we see particular Ministers highlighted in reports published by independent bodies. The three who are mentioned are Tony Blair, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) and the shadow Chancellor. The shadow Chancellor took great pride in taking credit for the design of the regulatory structure, which failed, and he compounded those mistakes in the design of the structure by putting pressure on the FSA to go for a light-touch regime. The taxpayer has picked up the consequences of the failure to design that structure correctly and of the inappropriate pressure to have a light-touch regime when it came to the regulation of RBS and others. The taxpayer is paying the cost and the Opposition should be apologising for that.

Although the report includes useful forward-looking recommendations, its review of the actions of executives, directors, regulators and Ministers that led to the crisis amounts to 487 pages of “Oops!” That includes the laughable statement on page 352 that

“deterrence will most effectively be achieved by bringing home to such individuals the consequences of their actions.”

Does the Minister agree that deterrence would be more effectively achieved by those people hearing the clunk of the prison door and the turning of the key?

My hon. Friend is right to say that many taxpayers up and down the country who have seen £45 billion poured into RBS want to know why action has not been taken against its directors. Today’s report is an attempt to address those issues. It recognises that there are some problems with the sanctions available to the FSA and in the Companies Acts, and we are committed to reviewing them and seeing which tougher sanctions can be put in place to deal with directors who let down the businesses they work for and the customers they serve.