This is a simple example of how requiring current asset level disclosure helps both the bankers and the regulators.
The Public Accounts Committee (PAC) said that when RBS and Lloyds were in talks to join the Asset Protection Scheme (APS) in 2009, the "lack of certainty on the nature" of the bank loans "put the Treasury in a difficult position."
The APS was established as state insurance scheme to guarantee the worst of the banks' bad loans to stabilise the system. By the time it was up and running, only RBS entered into the APS, but Lloyds was also assessed by the Treasury during the establishment of the scheme.
In its report published on Tuesday, the PAC said: "It is alarming that two of the UK's major banks were simply unable to provide sufficient data to assure the Treasury that their assets were not linked to fraud or other criminal activity. It raises questions on the management controls within the banks and the quality of audit provided to the banks."
The Committee, which has investigated the Government schemes set up to stabilise the banks, added that in giving evidence "RBS acknowledged that a lot of things had not been done well prior to the crisis, including keeping good books and records."
The MPs have demanded that the Treasury "takes steps to ensure the banks address these gross deficiencies in basic data" and put in place a system through which they can check.
... RBS declined to comment on the data gaps. A spokesman for Lloyds said: "We believe we provided the necessary data to the Treasury within the tight time frame required. The request for this data from the Treasury coincided with the Lloyds TSB merger with HBOS, making data collection difficult during those initial months, which was a position unique to Lloyds within the banking sector at that time."
... The PAC ... warned that "there is a small risk" that the banks could fail again and urged the Treasury to be prepared.