By Tony Collins
Sir Mervyn King, Governor Bank of England, promised today that there would be a “very detailed inquiry” once problems at RBS/Natwest are back to normal.
Such a report would be unusual because the cause or causes of IT-related crashes in the public and private sectors are usually kept secret unless in rare cases a legal action comes to court.
Mervyn King told the Treasury Committee today:
“Once the current difficulties are over then we will need the FSA to go in and carry out a very detailed investigation to find out first of all what went wrong but even more importantly why it took so long to recover.
“Computer systems will always go wrong from time to time. The important things are your back-up systems and the time it takes to implement recovery. As of now we have kept in very close touch. My office was in touch with senior RBS management right through the weekend. Our banking director was in touch with RBA and FSA on this right since this problem began … It is still going to take time to catch up, to get back to normal.
“The important thing now is that we provide whatever support is needed to let them put it right. Once it is back to normal then we must carry out a very detailed inquiry.
“To my mind, one of the big lessons from this is that it shows everyone is how important the basic functions of banking actually are: what can go wrong when the system of payments from person to another is interrupted. Fortunately it has been one bank, albeit a very big bank, and customers of that bank have been affected, and of course customers of other banks have been affected, and payments have not gone through.
“I hope this is a reminder, a demonstration, to everyone, for example, of what might have happened if we had not rescued RBS in the autumn of 2008. The whole payment system would have collapsed. [It is] why it is so important to ensure you have a banking system where the people running it are completely focused on this essential service function of banking to provide … customers with a functioning payment system.
Learning from supermarkets.
“I have been driven by the belief that the nature of banking and providing these kinds of services is very different from investment banking operations. Those are important but they are very different. When you go out and see how supermarkets operate, the senior management is utterly focused on ensuring that the IT systems, the ordering systems, the delivery system, works hour by hour. That is very important to ensure that that is true of the banking system as well…”
History is, to some extent, the story of the unforeseen, in which case a published report on the cause of the problems at RBS/Natwest could be helpful to other banks and major organisations whose ageing systems are vulnerable to an unforeseen failure of huge proportions.
A published report on the crisis may show systemic management failures. The mere fear of such a report would be an added deterrent – additional to potential losses and payments of compensation – to any bank that does not give the attention it should to operational systems, even when those systems support a retail banking operation that may represent a small part, perhaps only 2% of a bank’s balance sheet.
It is ironic that RBS is publicly owned. Will the IT disaster now be added to the list of other public sector failures? Did RBS, now in the public sector, drop its IT-related standards and caution in part because the commercial imperative was absent?