Bankers were authors of their own demise

Top bankers have made an ‘astonishing mess of the financial system’ and were the ‘authors of their own demise’ because ‘risk management and due diligence were seemingly ignored,’ a parliamentary inquiry has revealed.

The Treasury Committee of MPs released a second report on the banking crisis, which pinned most of the blame for the financial disaster on the culture of risk taking within banks and their misplaced faith in financial innovation.

John McFall, Chairman of the Committee said: ‘The banks have failed to govern themselves effectively: senior managers failed to understand the investments being made in their name; risk management and due diligence were seemingly ignored; and the non-executive directors, often eminent and hugely experienced individuals, failed in the proper scrutiny of the banks' activities.’

‘Bankers have made an astonishing mess of the financial system. However, this was a failure not only within individual banks but also of the supervisory system designed to protect the public from systemic risk,’ the report continued.

“Bankers have made an astonishing mess of the financial system. However, this was a failure not only within individual banks but also of the supervisory system.

Treasury Select Committee

The Committee criticised Royal Bank of Scotland's ill-fated acquisition of Dutch bank ABN Amro.

It also found that low real interest rates, a search for yield, and apparent excess liquidity were all contributing factors to the financial meltdown.

‘These ingredients combined to create an environment rich in overconfidence, over-optimism and the stifling of contrary opinions’, said the report.

‘Whilst we would hope that the nature of banking, and bankers, would change in response to what has happened, the responsibility also falls on the regulator to create a more durable framework for finance in the future. Rewards for failure must not be repeated,’ added the MPs.