The committee’s ‘The FSA’s Report Into The Failure Of RBS’ report concluded that the regulator “should and could have intervened” when the bank announced that it intended to acquire Dutch bank ABN Amro in a £49bn deal in 2007.
The takeover is one of the main reasons that led to RBS being bailed out by the taxpayer in October 2008, as it squeezed the firm’s capital buffers and left it exposed to more troubled loans.
According to the report: “The FSA should have intervened at an early stage. It should and could have intervened at a late stage, albeit with more difficulty. We need a regulator with the self-confidence to intervene, even if it might cause some destabilisation in the short term.”
The cross-party group of MPs also criticised FSA chairman Adair Turner for his initial reluctance to publish the full results of the watchdog’s three-year investigation into the failure of RBS. The report was later released.
The FSA showed “an astonishing lack of appreciation of the understandable public interest in the failure of RBS” in holding back on immediately releasings the report, the committee added.
Andrew Tyrie, chairman of the select committee, said the conclusions of its report should be borne in mind when the FSA is scrapped next year to make way for the Prudential Regulation Authority (PRA) banking supervisory unit and the Financial Conduct Authority watchdog.
The committee recommended that the government places an explicit requirement for the PRA to approve major bank acquisitions and mergers in forthcoming financial legislation.
“It is crucial that the PRA takes on board an important lesson from this report – there is no substitute for the exercise of judgement,” Tyrie said. “There are early encouraging signs that, in the PRA, judgement-based regulation is doing more of the heavy lifting than the FSA’s failed culture of box-ticking.”
The FSA responded to the report by pointing out that it has put a new model of supervision in place since the crisis.
A statement said: “The FSA has put in place a completely new model of supervision since the financial crisis in addition to major changes to the capital and liquidity levels firms are required to hold.
“We will consider the report’s findings and recommendations in detail."