The Parliamentary Commission on Banking Standards has concluded that HBOS would have faced oblivion even if the banking crisis had not taken place.
The commission’s report, published today, looks into the circumstances behind HBOS being rescued by Lloyds in September 2008.
It found that management failings were to blame and singled out former chairman Lord Stevenson, and the former chief executives Sir James Crosby and Andy Hornby for specific blame.
The report said that Sir Charles Dunstone, non Executive Director of HBOS 2001-08, observed, if HBOS had survived as an independent entity in the form it took in 2008, it would almost all fall within the proposed ring-fence.
It said: “HBOS had no culture of investment banking; if anything, its dominant culture was that of retail banking and retail financial services more widely, areas from which its senior management were largely drawn. Whatever may explain the problems of other banks, the downfall of HBOS was not the result of cultural contamination by investment banking. This was a traditional bank failure pure and simple.
“It was a case of a bank pursuing traditional banking activities and pursuing them badly. Structural reform of the banking industry does not diminish the need for appropriate management and supervision of traditional banking activities.
“Another lesson is that prudential supervisors cannot rely on financial markets to do their work for them. In the case of HBOS, neither shareholders nor ratings agencies exerted the effective pressure that might have acted as a constraint upon the flawed strategy of the bank. By the time financial markets were sufficiently concerned to act as a discipline, financial stability was already threatened.
“HBOS throughout its short life failed adequately to recognise and act upon the principal risks to its business models, including asset quality and liquidity risks. It may be possible for banks with small market shares to outperform the averages and avoid losses the industry as a whole is incurring. However, when the market shares are as significant as at HBOS, notably in the more vulnerable areas, it is highly unlikely that exceptional single name credit selection can be sufficient protection against a whole industry downturn. In fact, such selection is likely to be illusory and provide false comfort.
“This lesson also applies to international expansion plans which target significant market share growth from strong local incumbent banks; history has shown that foreign banks frequently have weaker franchises and are exposed to higher risks in downturns, and in this respect HBOS was simply another example.”