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Capital crisis 'was real cause of crash'

Davies: ‘light touch’ FSA was not to blame for banking crisis

Sir Howard DaviesNew Royal Bank of Scotland chairman Sir Howard Davies has denied that the Financial Services Authority (FSA) was to blame for the failure of the banks in 2008.

Sir Howard, who set up the now-disbanded FSA, said in an interview that its “light touch” regulation was not at fault and that it was a lack of capital that caused the crash.

He told the Reuters news agency that the FSA was not the cause of the failure of banks such as RBS, which cost taxpayers billions to rescue.

“The big problem during the crisis was that banks didn’t have enough capital. It had nothing to do with light-touch regulation,” he told the agency.

“There’s no sense in which the FSA was ever a light-touch regulator in capital terms. It implemented internationally-agreed capital standards,” he added. “No one has ever demonstrated that there was any kind of blind eye turned to capital requirements”.

 

Davies, a former deputy governor of the Bank of England, set up the FSA in 1997 and ran it until 2003. He will take over as RBS chairman in September.

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