At the end of 2007, 56% of HBOS’s funding was wholesale, revealed the Independent Commission on Banking’s report.
HBOS and Northern Rock both foundered from over exposure to wholesale funding and too little capital, it said with Northern Rock suffering in particular from too little intrusive supervision, according to the Vickers report.
In the case of Northern Rock, just 23% of its funding came from retail deposits with the majority again coming from wholesale sources, including securitisations and covered bonds. As wholesale funding markets froze in autumn 2007, the Bank of England provided emergency liquidity assistance before it was taken into public ownership in 2008.
More “intrusive “supervision would have held the bank back from its policy of rapid growth financed by securitizations, said the report.
The Independent Banking Commission said RBS failed after the debt-financed ABN AMRO buy up and further ongoing losses.
The bank raised £12bn of new equity from existing shareholders in 2008 but this proved insufficient. The Government injected a further £45bn of equity and insured some assets against extreme losses.
Today’s proposed reforms would have barred the ABN AMRO acquisition without raising further equity first, it said, and the ring-fence would have isolated its EEA banking operations.
For the full Independent Banking Commission report, click here.
