Old Lady Saves Scot while Knight Leaves the Stage

2008 found the storm clouds of a financial tempest closing over RBS. A massive six billion pound loss finally forced Goodwin to face the reality of the unfolding tragedy and act. RBS needed new capital and it needed it fast. Sir Fred sought the aid of the shareholders, attempting inorganic capital raising. The storm was too great and actions too small and too late. RBS now saw itself cut adrift on this violent sea, the markets seized up and other banks turned away, refusing to lend to the struggling institution. Goodwin was quickly running out of options as the share price fell. Fear stalked the financial landscape. October 6th 2008 saw the largest withdrawal of deposits the bank had ever witnessed when a large oil firm withdrew its funds, there was even talk of the dreaded bank run.

Were we witnessing the death throes of the world’s largest bank, was this Scots tiger really going to die? The Chancellor of the Exchequer Alistair Darling, himself a Scot was shaken; he made his feelings clear, stating:  “The prospect of the world’s largest bank shutting its doors was not one we wanted to contemplate.” Darling was well aware that if RBS fell the contagion effect could destroy the entire financial system.
RBS had gone from the pride of British banking to a canker in danger of spreading and killing the British banking system itself. With all avenues closed there was nowhere to turn except to the Old Lady of Threadneedle Street herself. Goodwin now looked to the Bank of England to throw a financial life buoy as the lender of last resort,

But could the Old Lady help? The Bank of England felt that the RBS ship was capsizing and was too close to insolvency to provide the emergency funds to help.  RBS needed to hold a higher level of capital. The life boats weren’t being deployed yet and RBS was able to recapitalize.  Subsequent to the recapitalization the Bank of England was able to provide the aid required.  The Scots giant was humbled; RBS was forced to accept a £20 Billion tax payer funded bailout, with the British tax payer now owning 84% of RBS.  How ironic that an institution founded to ameliorate the effects of the Act of Union would now be owned by the State that act created. So what of our Knight of the Realm? Sir Fred was forced to leave the stage albeit with a reduced pension of a paltry £342,500.