The FSA report, which runs to about 490 pages, is now in its final draft, according to Sky News.
One version reportedly said RBS’s decision to bid for ABN Amro “on the basis of limited due diligence created a degree of risk-taking that can reasonably be criticised as a gamble”.
The report is expected to raise the prospect of bank directors being forced to prove their innocence in the event of a future bank failure. They could also be obliged to forfeit remuneration, and face toughening laws governing directors’ liability in the event their bank goes bust.
The FSA could also recommend banks should require regulatory approval for significant acquisitions.
In his introduction to the report, Lord Turner, the FSA chairman, argues that in contrast to the boards of other companies, directors of banks should place less emphasis on profit maximisation and more on effective risk management.
If adopted, the move would represent a fundamental shift in the way that big banks are run.
The FSA does not intend to pursue any new enforcement action against any former RBS director, including CEO Sir Fred Goodwin or chairman Sir Tom McKillop, which would have resulted in a fine or ban.
As part of its inquiry, the FSA wrote to former non-executives of the bank, including Sir Tom McKillop, the chairman at the time of RBS’s collapse, to gauge whether they had felt intimidated or bullied by Sir Fred’s notably autocratic style. None of the former directors responded that they had.
Nonetheless, the report suggests that in 2003-04 – long before RBS got into trouble – the FSA had identified risks attached to a chief executive as dominant as Sir Fred was renowned to be.
Earlier drafts of the FSA report raised questions about Sir Fred’s judgement in relation to RBS’s investment banking arm and referred to internal criticisms of him that he tried to operate as the bank’s chief financial officer as well as its chief executive.
Central to the mammoth document that will hit desks across the City on Monday is the FSA’s narrative of why RBS failed.
The report identifies six principal reasons for the turmoil at the bank, which sought £12bn from shareholders in the spring of 2008, but which was forced to seek a £45bn rescue from British taxpayers not much more than six months later when the bank was on the verge of running out of cash altogether.
The six reasons are: weaknesses in RBS’s capital strength because of management decisions that were allowed because of inadequate regulatory capital requirements; an excessive reliance on riskier short-term funding; uncertainty about the underlying quality of RBS’s assets, which it said had been subject to insufficient analysis by the FSA; sizeable losses in the bank’s credit trading arm, which served to undermine market confidence in it; the inadequate due diligence which paved the way for RBS to lead a consortium into its near-£50bn takeover of ABN Amro; and the wider crisis in the financial system which left individual banks susceptible to failure.
The report also highlights a potential seventh contributing factor to the crisis at RBS in the bank’s management style, governance and culture.
The FSA also talks about remitting RBS to the disciplinary arm of the Financial Reporting Review Panel in its report.
