The banks have been made a scapegoat for the financial crisis, Stephen Hester, group chief executive of the Royal Bank of Scotland (RBS) told the Future of Banking Commission today.
He said that an economy fuelled by consumer spending and asset bubbles in areas such as property had helped to create a situation in which a financial crisis could occur. However, he claimed it is the government’s job to manage the economy in order to prevent the position from becoming unstable.
Speaking at the Commission’s third evidence session, the RBS chief said it was vital for long-term banking reform that we find ways to reduce the government subsidy received by banks such as his.
He said that although it is important to reduce the risk of banks going bust, it is impossible to create a bank that can’t, so we need to develop a system for dealing with the situation when they do.
Stephen Hester said: ‘We need to develop this in the context of a systematic crisis, when all banks could go bust, as they exist only on confidence. The question is how to let a bank go bust while allowing its functions to continue.’
Investment banking profitablity
Amidst ongoing debate about whether investment banking and retail banking should be kept separate, Stephen Hester insisted that the overall profitability of investment banking puts banks in a stronger position to stop themselves failing.
He also pointed out that financial institutions such as building societies that were not involved in investment banking have also failed. He said: ‘Many more narrow banks have gone bust than wider banks. There is no factual evidence supporting the idea that the combination of the two is more risky.’
Which? Money when you need it
You can follow @WhichMoney on Twitter to keep up-to-date with our Best Rates and Recommended Provider product and service reviews.
Sign up for the latest money news, best rates and recommended providers in your newsletter every Friday.
Or for money-saving tips, and news of how what’s going on in the world of finance affects you, join Melanie Dowding and James Daley for the Which? Money weekly money podcast
For daily consumer news, subscribe to the Which? news RSS feed here. And to find out how we work for you on money issues, visit our personal finance campaigns pages.