The Royal Bank of Scotland is one of the United Kingdom’s largest banks. A few years ago it became insolvent and by any normal rule of business, if the shareholders were unable or unwilling to support it, the bank should have gone into insolvent liquidation. However, irony of ironies, the government deemed the bank too large to fail and supported it with so much cash that the government (or taxpayers more accurately) now owns 81% of the bank.
The RBS group actually reduced its lending to small businesses last year while increasing its lending to individuals of doubtful credit. It is as though the bank wants to emulate Wonga and its profits. The RBS’s subsidiary, NatWest’s slogan is that it the helpful bank. The kind of help it offers is best avoided. A more accurate slogan would be “the help yourself (yo your money) bank.
Today the RBS has been fined £385 million because it fiddled its LIBOR rates by returning inaccurate rates between 2006 and 2010, the last year or two of the LIBOR fiddle was conducted when the bank was owned by the taxpayer. £300 million of the fine will end up in the coffers of the United States Government.
The RBS claim that the LIBOR fixing was done by 21 employees; that avoids the real issue: if a bank organises itself so that 21 employees can cost customers billions of pound by dishonest practices where was the bank’s management looking? Obviously at their bonuses.
The government said that the fines would be paid by the bank, not the taxpayers and some of the money would come from future bonuses. I cannot see how a fine of this magnitude can come other than from the assets of the bank, which means that the fine reduces the value of the government’s shareholding in the bank.
The fine is just the tip of the iceberg. Having established guilt, the bank will face many claims from businesses and people who traded, borrowed or lent with reference to LIBOR and in particular the LIBOR rate that related to the Japanese Yen and the Swiss Franc. If you manipulate a market by fraudulently rigging one feature of it all the losers will look for compensation.