Any Report on the Failure of RBS Will Confirm Need For Current Asset-Level Disclosure

Like the Financial Crisis Inquiry Commission Report, the report put together on the RBS failure will show the need for current asset-level disclosure.

As discussed in a column in the Telegraph, the FSA report on the RBS failure should raise

... a number of central questions to which we as a country must start formulating answers.

The answers to many of these questions can be found in the FDR Framework.  Specifically, insuring that market participants have access to all the useful, relevant information in an appropriate, timely manner.

[Alistair Darling] says that there were “no particular warning lights” about RBS in early 2008. 

The question is, why not?

He also points out that neither the FSA, nor the Bank of England nor the banks themselves could produce what he describes as a “health check” – a document which highlights the risks faced by financial institutions. 

Again, why not? 

The answer to both 'why not' questions is because financial institutions are not required to disclose their current asset-level data to all market participants.  Without this data, it is impossible for market participants, including competitors, to do a 'health check' and flash a warning where appropriate.

“People tend to ask questions when things go wrong, correctly, but they should also ask questions when things go right,” he said. 

“If someone is making a lot of money somewhere it is always worth asking the question why. 

It could be it isn’t the skills or the flair that you have; it could be that something [is] going terribly wrong.” 

The market participants with the best ability to make the distinction between skills and luck are competitors.  That is why it is important to insure that they have access to the current asset-level data.  By analyzing this data, the competitors can determine if it is skill or luck and adjust their exposure and the pricing of this exposure accordingly.

... One intriguing fact that has come out this weekend is that Sir Fred Goodwin, the former chief executive of RBS, had no official internal email address – or certainly not one his senior team were aware of. The most prominent directors at the bank have told us they could not contact him directly and had to send messages to his secretary. Some wonder whether this was a way of Sir Fred avoiding information he did not want to see and maintaining a “clean-skin” approach to what was going on around him. 

A little detail, perhaps, but one possible revealing of a culture of “hear no evil, see no evil” at the bank. 

This culture could not have existed if there had been disclosure of current asset-level data as market participants, like credit and equity market analysts, would have seen the risks that RBS was running.  These participants would have been vocal about the risks and how RBS intended to manage them.