Bank that ran out of money?

The Royal Bank of Scotland (RBS) which was founded in 1727 , is one of the oldest banks in the UK that had gone through their up and down in the past. The bank had successfully made billion of profits previously and was once the world’s largest bank with great bonus and reputation. However, the profit-making bank turned out to be a disaster in late 2008. The bank suffered the biggest loss in UK corporate history,which was worth 24 billion pounds that led to damaged in reputation of the bank and finally the lack of liquidity inside the bank. What were the main factors that cause the bank to suffer? Was that failure of management by Fred Goodwin? Financial crisis? Or any others?

From the video that I have watched, I got an idea that Fred Goodwin had the potential to become an executive and  lead the bank with his skill in cost cutting. I agree an management style like Fred’s would made the whole organisation more efficient and effective, and that was part of the reason why RBS grew bigger and bigger. However,  there were pros but also cons in his management style. The video mentioned that Fred had the reputation on being quite hard on the staff, inhibited others to express their view and quite difficult as a boss. Was this the one of the internal reason why bank did not perform well? I do think so! Imagine a leader with good attitude and behavior who get along well with the staff and employees.  Wouldn’t the employees be happier to work under him? Wouldn’t the employees become more effective and productive? Yes it would! Not only that, Fred could have came up with better strategy to cope various obstacles by having discussion with other seniors and staffs.

 The acquisition of one of the Europe’s largest bank, ABN AMRO played a primary  role in the bank’s failure. How the acquisition did made the bank failure?  I think the board and Fredwin should not go for acquisition with risk which is already identified. The poor decision made caused RBS to increase their reliance on short-term wholesale funding and also increased credit risk exposures in its trading portfolio. Why did Fredwin made the move to acquire ABN ARMO? Did he think that acquiring ABN AMRO would make profit in both short run and long run? Well, he probably did.  As what stated in the video, almost all the loss are in the sub-prime market of America, and related to the acquisition of ABN AMRO.  From the statement, I think that Fredwin had done poor decision making, especially in relation to risk. The bank might not fall into crisis if Fredwin did a clear and logical background research of ABN AMRO before acquiring it.  The failure of RBS can be clearly seen after the American bubble burst. The involvement of RBS in sub-prime lending made the shareholder and public lose their trust on the bank, no one was willing to lend money to RBS despite the lack of liquidity. Therefore,british government had to paid $45.5 billion to bail out the bank to avoid the collapse of the bank. However, some of these could be avoid if RBS had a better management.