The ongoing fall-out arising from the departure of the Chairman of the
Co-op Bank continues. Flowers was the £132,000-a-year chairman of
the 'ethical' Co-op Bank from 2010 until May this year when he stepped down as
the bank's financial woes became apparent. The bank lost £700 million in the
first six months of this year.
The failure of the regulatory authorities specifically the FSA (the UK’s
Financial Services Authority) again highlights the fact that they really did
not understand the complexities of the business which they were in the position
to regulate.
Furthermore
the FSA's seemingly lackadaisical approach to his appointment was - many would
say - compounded, by the fact that it allowed Co-op Bank for months on Flowers'
watch to negotiate another huge deal. This would have resulted in the bank
trebling in size by buying more than 600 branches from Lloyds (a deal from
which Co-op ultimately withdrew, when it belatedly recognised it was beyond its
management capabilities).
Following
the closure of the FSA, on 1st April the Prudential Regulation
Authority (PRA) became responsible for the prudential regulation and
supervision of banks, building societies, credit unions and major investment
firms.
In
promoting safety and soundness the PRA focuses on the harm that firms can cause
to the stability of the UK financial system. A stable financial system is one
in which firms continue to provide critical financial services – a precondition
for a health and successful economy. Hopefully it will be more efficient than
its predecessors.
The situation at the Co-op Bank is an outstanding example of a business
out of control. At the same time it begs the question how many businesses are
similarly basket cases yet by smoke and mirrors are able to befuddle and
confuse both their shareholders and bankers.
For example as the owner of an SME are you really confident in the
integrity of the figures presented to you by your finance department? Or as the
shareholders of RBS are you merely content to receive good news without
challenging the how and whys of these results being achieved?
It all boils down to the age old fact that if something looks too good to
be true it usually is.
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