Hester says banks scapegoat for financial crisisBanks only partly to blame, claims RBS chief

15 March 2010

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.

Stephen Hester

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.

Long-term solutions

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.’

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