Sunday, December 11, 2011

RBS failure to grasp scale of sub-prime exposure highlights need for utter transparency

A Telegraph article discusses how prior to its collapse RBS failed to understand exactly how large its exposure to sub-prime securities actually was.

Regular readers know that this would not have been a problem if banks were required to provide utter transparency.  With on-going disclosure of its current asset, liability and off-balance sheet exposure details, RBS and all market participants would have know exactly what its exposure to sub-prime securities was.

This is a point worth re-emphasizing.  What we are talking about are easily known historical facts.  These sub-prime exposures were tracked by RBS' internal information systems (its back office).

There should have been no mystery.

More importantly, this information needed to have been disclosed in an appropriate, timely manner so that regulators and the market could properly assess the risk of RBS.

Had this information been disclosed, and the same goes for ABN Amro, it is both possible and probable that the ill-fated acquisition would never have taken place.

Royal Bank of Scotland managers failed to give shareholders and analysts an accurate picture of its sub-prime mortgage exposure in early 2007 as they had little idea of the scale of the problems the bank faced.

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