Leaders: Lesson of HBOS must be learned | Sanctions may put Kim off his stride

HOW on earth did it happen? To the most searching question over the near collapse of banking giant HBOS, there is another: could it happen again?

The report of the Parliamentary Commission on Banking Standards into the failure of HBOS provides a lacerating answer to the first question. It is not so firm-footed on the second.

The two-fold virtue of the Commission’s report is the unsparing detail it provides on the management failures at the top of what was Britain’s largest retail banking operation and its identification of the three people most responsible: Sir James Crosby, chief executive between 2001 and 2006; his successor Andy Hornby and in particular Lord Stevenson who was chairman throughout this period. Right to the end – and even beyond – senior management was convinced of its own rectitude and conservatism.

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The commission’s report explodes the myth that the downfall of HBOS was due to the seizing up of wholesale money markets, but in fact stemmed from a rapid and incautious expansion in which risks were constantly minimised or misunderstood. Its analysis also makes clear that, to the extent the bank admitted any failure, it was due to the corporate banking operation only and to Peter Cummings who was in charge. Management reporting systems and risk assessment were at fault and responsibility for these failings lay at the top. The severity of its censure on these three can be gauged by its recommendation that the Financial Services Authority considers whether all three should be barred from any position in the financial services sector for life.

This condemnation will bring little consolation to the hundreds of thousands of shareholders and the many thousands of junior HBOS staff who have suffered a loss of more than 90 per cent of their investment.

Among the glaring failures of the stewardship of HBOS was that none of the structural checks and balances were performed as they were supposed to do. Non-executive directors, who are supposed to bring oversight and act as a check on errant managements, failed abysmally on this occasion. The vaunted system of internal risk controls and independent risk assessments also flashed no warning signals.

There can never be any guarantee that banks will not experience a similar failure in future. But more effective safeguards can be put in place. The tide is already running in favour of the separation of retail and investment banking. Much is now being undertaken to improve “corporate culture” within banking institutions. And of course, commercial bank lending is much more carefully assessed. It is to be hoped that the steps outlined are enough.

But arguably the most effective change of all would be to make documents such as today’s report compulsory reading for all Institute of Bankers examinations, backed up with regular “refresher” courses. Memory must be kept alive.

North Korean leader Kim Jong-un has made increasingly belligerent moves in recent weeks that have worked to raise tensions throughout South East Asia and beyond.

In the latest move, North Korea has shifted a missile with “considerable range” to its east coast, a move which could bring US bases in South Korea and other places into range. The regime has already renewed threats of a nuclear strike against America, though its missiles are not believed to be yet capable of carrying nuclear warheads. In response, the US has moved missile defence shields to Guam.

The increasing belligerence of Pyongyang has not only unnerved South Korea and Japan but has also caused apprehension in Moscow and Beijing. Russia has gone so far as to say that North Korea’s attempts to “violate decisions of the UN Security Council are categorically unacceptable”.

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So what is afoot? One interpretation is that this is a series of moves by a relatively new North Korean leader to build his credibility with the army and to garner domestic political support.

Unnerving through the rhetoric is, few take seriously gestures indicating an intention to strike at the US. But the Obama administration can take no chances and has to make clear both that it will continue to stand by South Korea and that it will not be intimidated.

The bolstering of defence capability surrounding Guam is prudent, given that the island is within range of Pyongyang’s missiles.

Should the North Koreans persist, economic sanctions rather than more military build-up might be the more prudent course against a young and relatively unknown – and hard to predict – leader in Pyongyang.