THE COLLAPSE OF THE HALIFAX BANK OF SCOTLAND, AND THE SUBSEQUENT RESPONSE OF THE UK AUTHORITIES - Essay Example

HBOS formation took place in the year 2001 as a causal resulting from the merger of both Halifax and the Bank of Scotland. The former’s position towards mortgages and the latter’s bravery in corporate lending that was to create a balanced Big Five Bank. In the year 2001, it had a total assets summing to 275 billion pounds, much bigger than that of its ultimate rescuer Lloyds and approximately three-quarters as big as Barclays and the Royal Bank of Scotland (O’sullivan & Kinsella 2013, p. 9). This report will highlight the four areas in which this new banking force sowed its destruction seeds.

These four areas include aggressive expansion; deluded management; failure of internal controls; and reluctance to heed to the warnings of the FSA, and even allowing the shortcomings of the regulator. The key to the growth of HBOS, as per the findings of the commission, was in accepting of more risks across all the division of the group. The strategy was to ensure a new cultures in the higher echelon of the banking system. This culture was brash and underpinned by the belief that the growing market shares were as a result of a special skills category possessed by the HBOS and lacking to the competitors.

The culture effects became even more corrosive when joined with the absence of corporate self–knowledge within the organization top as time elapsed. Tellingly, in October 2007, as the alarm bells rung in banks all over the world, Cumming, the head of HBOS debt-fuelled corporate wing, remarked that people appeared to lose their nerves. They were panicking even to the days testing property environment (Veron 2010, p. 113). Cumming’s corporate division ended up with an impairment of 25 billion pounds, an equivalent to the 20pc of its loan book in 2008, and away out of balance with rival banks.

But while the corporate book holes hastened, the rescue by the taxpayers and