RBS and Libor

So as expected, RBS was fined. Fined by the FSA and two US regulatory authorities. Its crimes were much the same as those committed by Barclays and considerably less than the awful behaviour of UBS. Unlike Barclays, it will not lose its CEO even though the rate-fixing continued well into 2010, which is getting on for two years into Hester's tenure. I suppose the explanation for this is that Hester had so much on his plate in those first two years that he missed this. It strikes me as rather a major omission on his part, though.

The really interesting thing in this is the behaviour of one George Osborne. RBS is, of course, 83% (ish) state-owned. So as fines are paid out of income, the result is a lower return to the UK government. You could say that UK taxpayers "pay" the fines. Osborne rightly points out that as the FSA's fine is returned to the government, there is no net cost. But fines paid to overseas regulatory bodies are a different matter. And that is the reason for Osborne's pre-emptive strike on RBS's bonus pool.

Many people would see it as entirely reasonable that RBS should pay its US fines from the money it would otherwise have set aside to pay bonuses. But actually this is not much more reasonable than expecting the UK taxpayer to foot the bill.

Few if any of the people who would qualify for such bonuses were in any way involved in the Libor rigging. The actual people involved have left or been sacked already. So the people who will pay this fine are not the people who committed the crime. That is unfair.

And it gets worse. The majority of people working for a large bank like RBS are ordinary people doing ordinary jobs - branch staff, back-office clerks and the like. They aren't particularly well-paid and their annual bonus just gives them a little bit extra - like the Christmas bonuses traditionally paid to postmen or milkmen. But their bonuses now stand to be cut. It isn't just the highly-paid (and high-profile) "banksters and traders" who will suffer - in fact I suspect that if anything these people will have their bonuses protected. No, it will be the thousands of ordinary people who work for RBS.

Osborne has rightly acted to protect the interests of UK taxpayers in general. But he has done so by hitting people who are blameless. I suppose that was inevitable, but really it would be better if the people actually responsible for the crime paid for it. Saying they "will face the full force of the law" doesn't mean that they will suffer the financial consequences. It is too late for RBS and the other Libor-riggers - retrospective legislation is in my view iniquitous - but we urgently need to make it possible for banks and corporations to claw back bonuses when they turn out not to be justified in reality. Bankrupting criminal traders and negligent managers is without question a far better solution than hurting thousands of ordinary bank staff or millions of taxpayers.


  1. Osborne is just playing to the gallery with his not being paid by the taxpayer nonsense. RBS accounts are not consolidated with the public sector so there was never any question of the taxpayer paying in the sense of a Treasury transfer payment. Whether RBS pays bonuses to their staff from income or pays a fine from income makes no difference to the equity value of the Treasury holding. The effect will be neutral if they reduce the bonus pool by the same amount as the fine. It costs RBS balance sheet nothing financially other than intangible reputation harm.

    However, the amount paid in bonuses reduced does cost the HMRC reduced revenue collection from the bonuses. I believe like the Barclays fine the FSA after deducting their expenses from the fines are donating the money to military charities. I agree that it is unfair on all the RBS staff unconnected to Libor.

    1. Hi Richard,

      Yes, that's a fair point. Forcing RBS to pay the fine from bonuses could actually leave the Government worse off, because of the loss of higher-rate income tax and/or CGT revenue. Osborne is politicking again.

  2. Criminals need to be tracked down and made to pay. Simple.

    1. I doubt the aggregate personal net wealth of the probably two dozen people involved is commensurate with the fine (traders like to spend it, it may even be negative), deduct the cost of due process, and that route may end up a net cost to the taxpayer. Simple, not.

  3. RBS may also lose some of their staff, and it's the best people who tend to be mobile, which may end up detrimental to the taxpayer as owner. It's difficult to quantify this effect but it must exist, otherwise we're arguing that RBS staff are insensitive to how much they're paid, in which case they should all be paid the minimum wage from the CEO down. I think this is what Osborne implies, therefore at the very minimum his minister salary should be set to the minimum wage.

  4. Would the implementation of ringfencing not help to solve the fairness question here? Most of the honest wage earners at UK banks would be likely to reside in the 'retail' side of the bank whilst the vast majority of dishonest risk-takers would likely reside in the 'investment bank'. The two sides could have two separate bonus pools and the costs of failings and misdemeanours could be more fairly apportioned according to where the blame were to lie. Let's not forget though that plenty of "ordinary people doing ordinary jobs" were involved in the sale of PPI and knew full well when they were granting/selling unaffordable loans on commission, so having a separate bonus pool ought not to mean a guaranteed bonus pool. This solution obviously doesn't require any kind of legal ring-fence but is likely more readily explained to a sceptical public alongside a formal separation.

    Of course the costs to the bank are disproportionate to the gains to the offenders, that reflects the huge responsibility that some individuals have and take too lightly. However many other staff would have been in a position to observe, directly or indirectly, poor ethical standards in operation and so sharing the pain across staff is an incentive to all to do a better job of weeding out black sheep.

  5. It will be interesting to see if GO tries to put pressure on RBS bonus' to be paid in full in this tax year (before the top-rate tax reduction in April)

    There was an ouotcry over banks and high-net worth previously delaying their bonus payments to avoid the 50% tax, so surely he should try to get them (including Lloyds) to pay them in full in March to maximise the tax revenue


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