In most people’s eyes, the Royal Bank of Scotland (RBS)
was once a famous Scottish institution in the past twenty year; it was a bank
with a reputation for prudence, even sometimes people considered it as the best
bank than any British bank. Specially, when Fred Goodwin became their leader;
under his leadership and operational strategy which was aimed at entering into
the US market, the biggest investment market all over the world and striving
for the status of dominance, the RBS began to develop at higher speed and soon
it got prosperous. Giving all investors’ surprises, every day is not Sunday. But in October 2008, less than a decade after Fred
Goodwin took over as chief executive, it came within hours of collapsing. The
RBS later posted their biggest loss in UK corporate history (24 billion pounds)
which damaged the bank's reputation for financial prudence and Scotland's image
as a global financial center.
According to the previously
unbroadcasted footage of the bank's top executives and interviews with bank
insiders, I learn the compelling story of a national catastrophe deeply. When
we refer to the financial crisis in 2008, we all remember the dilemmas in the
most industries of the world, too many people lost their job and they might be
hurt by this crisis. In fact, the financial crisis came from the subprime
lending crisis in us. Saying more clearly, in micro-level, it was a
crisis of the corporate governance. These weaknesses in the banking
industry reflect as follows:
Firstly, the internal defects;
1) There was not a sound
governance from the board of banks. For example, because the comprise
of the board mostly was the current and former managers, Citi Group's board of
directors was considered to be an insufficiency of objectivity and independence
2) There existed an unreasonable structure of shareholders. Such as
the Bank of America, the first biggest shareholder held only about 4%; by
contrast, the first biggest shareholders holding the shares of the Citi Bank
was only about 5%.
3) There was some
asymmetric incentives for executives. In the crisis, for example, the CEO of Freddie
Mac and Fannie Mae who were required to leave could still get severance payment
of $9.3 million and $14.1 million relatively.
4) There was low
information transparence.
On the other hand, the shortages of
external regulatory.
1)
Government had poor supervision.
2)
The existence of inadequate legal
mechanisms in U.S. market. Until 2000, many protective systems in the U.S.
financial sector had been revoked which set the potential problem to the
crisis.
3)
Rating agencies were not independent. In U.S
market, it was very common that a rating agency which could give the highest
rating to the issued securities, the issuer would hire whose service, so that
credit rating agencies had the tendency to grading high marks.
As for Chinese banking industry, they
have a lot of things to learn and improve. Owing to the governmental level is lower
than America, we need to take warning from the financial crisis in
western countries. Moreover, all banks in the world should take a joint effort
to push the Basel 3 into practice more quickly. Meanwhile, taking some
adjustments with the development of the global economy and faced with any
difficulties, we should take some timely and positive solutions.
