RBS faces biggest ever fine for THAT huge IT meltdown – leak

Re: Corporate fines == useless

That's a little harsh - that fine represents money that shareholders will feel they've been deprived of, so the board will have to justify it with a fall guy or risk investor groups questioning /their/ suitability to sit on the gravy train.

Re: Corporate fines == useless

Not necessarily, especially for banks.

Banks manage anything - including IT change control as "risk" now. The reason why jobs are moved to lower cost and lower qualification geographies is that the cost of risk in doing so does not outweight the cost savings.

This fine will be a precedent for change in the risk (and its associated costs) calculations. Will this be enough to stop some of the genuine stupidities involved in IT decision making - dunno. It will however have some effect.

Re: Corporate fines == useless

having had a property purchase caught up in this mess I remember it well. But as others have said I don't think fines are a good mechanism. I imagine the fine is there as primarily a crime and punishment approach, the fine being both a punishment and an example to others of the risk of poor systems practice. There might be a bit of motivation in there to fill treasury coffers but I suspect that's not a particular motivator here.

The problem is, it won't work. If there was only one bad apple and the fine was big enough perhaps. But the UK retail banking sector is being effectively fined for all sorts of issues - payment Protection Insurance etc. so they'll all effectively increase revenues to compensate for these costs - customers are more likely to pay than taxpayers.

Rather than the blunt instrument of fines, it might be better if there was a well policed and operated code of practice in the industry that encouraged good practice and allowed for the right level of quality.

From an insider

I'm in RBS at the mo.

> Corprorate penalties are useless, they're just passed on to customers and employees.

Well, yes and no. You could of course pass on costs to customers, but it's not a great idea, because you need to keep competing with the other guys who haven't been fined, and the last thing you need after paying a big fine is for your customers to take their money elsewhere. Similar with employees: to avoid the next fine, you need good staff doing things well, and cutting salaries causes them to go to other banks (and the labour market in banking is extremely liquid). Not saying that it doesn't happen -- it seemed pretty clear that Natwest tried passing on their costs to their customers in the wake of Robert Maxwell screwing them over -- but that was very bad for Natwest's reputation, and I think most of the industry have learnt from such mistakes, even if it took them a while. Certainly RBS have decided that their biggest mistake in the run-up to 2008 was a lack of good-quality customer service, and so their big company-wide target at the moment is to make customers want to stay. Passing on the fine to customers would be counterproductive.

In general, such a fine will be passed on to shareholders. In the case of RBS, that's the taxpayer. (I don't really see the logic in the state fining the taxpayer myself.) From RBS's point of view, what that will equate to is a delay in reaching the point where they can buy themselves back from the state, which is something they really want to do. That's the real punishment.

> If the senior management (and their puppets on the remuneration committee) think that the company's success is due to their individual actions and therefore they deserve individual megabonuses

Sorry, which is it? That the costs of fines are being passed on to employees or that employees are being given huge bonuses? You do get that they're opposites, right?

> what does logic tell you should happen when the same people's individual actions cause megadisasters?

No argument from me (I'm a great believer in paying the price of failure, and I was against the bailouts), but we know what caused this particular megadisaster, and it wasn't a senior manager; as mentioned in the article, it was an inexperienced member of IT staff screwing up a batch job. We've all been there -- or I have, anyway -- although not always with such disastrous consequences. I'm not sure how I feel about individual members of staff being fined for mistakes. At the least, we need to recognise that what we're talking about here is making people homeless. Who'd apply for a job with that sort of risk attached?

Re: Corporate fines == useless

"Corprorate penalties are useless, they're just passed on to customers and employees."

Fairly simple solution. The fine must be paid from the senior management bonus fund. And if a particular year's fund isn't big enough, just roll it on.

OK, only fairly simple because it needs a mechanism to stop the fund being inflated by the amount of the fine.

The same could be applied to all those "here's a few quid and we'll just keep keeping on" responses to complainants. Those few quid should come out of staff bonus funds. When they get depleted enough the staff learn to be more careful.

Re: Its not overly harsh

> Indivual members of staff can be done over for all kinds of misconduct already - mainly financial such as insider dealing and money laundering.

Insider trading and money laundering are both deliberate actions. I don't think there's been any suggestion that the employee in question screwed up the batch job on purpose.

Re: Yay, lets fine the victims...

> only a single banker was prosecuted after the crash. Just the one. And he wasn't even a high level executive.

Please explain which executives should have been prosecuted, and which laws they had broken. Then we may consider your complaint properly.

Re: Yay, lets fine the victims...

localzuk,

It's very hard to prosecute people for screwing up. Especially as you have to prove who did what when. Although I do believe there should have been attempted prosecutions for what I would call deliberate fraud, such as incentivising your staff to sell shitty PPI deals - and hiding it all in the small print. But that's very hard to get criminal levels of proof on.

However this narrative about the banking crisis misses out one fundamental thing. There was punishment. The problem is it was the shareholders who copped it. The government didn't bail out the banks for fun, it did it because it was cheaper than bailing out us, the banks' customers. So they were bailed out, rather than the expense, hassle and disastrous levels of economic dislocation involved in getting our savings back to us via the deposit insurance scheme.

The shareholders got wiped out, as the government put capital in, and took shares. In theory the government may not lose very much money at all - and may even make a profit on the bank bail-outs. Eventually we're going to sell off those shares. We've already made a good chunk of the money back on Northern Rock, and there's even a good chance of turning a profit there, as the mortgages in the bad bank we kept are still being paid.

By going for bail-outs, QE and deficit spending, we balanced most of the costs of the crash across the economy. So house prices dropped, but didn't plummet. This meant most people didn't go into negative equity, which kept us paying our mortgages, and kept the banks us taxpayers now own solvent. Savers lost out due to inflation and low interest rates, but then they got their money saved for them by everyone else, whereas the debt-spiral otherwise would have seen much of their savings wiped out.

Compare this with the Eurozone, where they tried to cut their deficits faster, did some disguised QE (but unwound it too fast) and haven't bailed out their banks. That's been (and still is) a fucking disaster, that's screwed the debtors over horribly. The savers are still mostly safe, but as the debtors are now totally impoverished (including several governments), they'll stop servicing their debts, and then the savers will start losing out. That'll get the creditor states panicking, and then there'll be QE, when they see the choice between losing their badly invested savings or bailing out the rest of the Eurozone.

Re: As RBS is majority owened by the government..

Sure we're fining the taxpayer, who owns 70% odd. The other 30% of shareholders lose their 30%.

But we're also going to sell RBS in a few years. So if they do it again, they know it's going to cost. As do the other banks. This is a nice incentive to spend a bit more on their IT. Particularly if it's made clear that the next fine will be higher.

Re: Fine

The banks do have to pay the victims for any cocked up transactions and charges caused by the cock-up. Though nothing for not being able to get at their money for a week. But it was made clear at the time that this would happen, so it's not like people were in limbo.

Sadly I was just organising a mortgage with Natwest that week, and I get 0.2% off my interest bill for having a current account with them. So I couldn't take my custom elsewhere. But other people were free to and most didn't.

So in this case, the regulator are trying to make a point that's easy for the board to understand.