If Fred Goodwin deserved to be stripped of his knighthood, so does Sir James Crosby. Monday's session of the commission on banking standards established that HBOS's fatal weaknesses in funding and lending were created and encouraged during Crosby's time as chief executive.
Nobody seriously believed otherwise, of course, but it was still useful to hear Crosby – through gritted teeth at times – make two significant admissions. First, he said it would be wrong to try to disassociate himself from the failure of the bank, even though he departed in July 2006 and the ultimate collapse happened in late 2008. Second, he agreed that HBOS lending was incompetent and the losses could not be explained solely by the broad financial crisis.
The statistics on those losses are extraordinary. The impairments on the HBOS loan book represented a loss rate of 10.5%, about twice as bad as Royal Bank of Scotland. HBOS even managed to lose £3.6bn in the relatively stable Australian economy. Note, too, that the bulk of HBOS's book was mortgages, where huge losses have never materialised. It took some doing to lose so much in other areas of activity. As the commission chairman, Andrew Tyrie, put it, this was very basic stuff.
The phrase Crosby used many times was "with the benefit of hindsight". Failed bankers always do, but the charge that sits heavily against Crosby is that his lack of foresight was greater than many others'. The commission produced a telling statistic on the pace of HBOS expansion in corporate lending. In 2002, the bank had five individual loans over £500m; by September 2006 it had 17, including two of more than £2bn. The deposit base could not keep up, thus inflating the dangerous reliance on wholesale funding.
Yes, it's true, as Crosby argued, that few anticipated the near-closure for a year of the wholesale funding markets. But HBOS under Crosby also appears to have been grossly complacent in believing that Bank of Scotland's corporate managers could breeze through any medium-sized crisis just because they had done so in the past.
In the rogues' gallery of failed UK banks, RBS has top spot because of its sheer size, but HBOS's collapse is only fractionally less appalling. Crosby has escaped Goodwin-like levels of scrutiny largely because he wasn't on the bridge at the moment the ship went down. But, if even he admits he is closely associated with the disaster, the knighthood question is relevant.
Rightly or wrongly, a precedent was set when Goodwin's gong was removed in January this year.
At the time George Osborne said: "I think we've got a special case here of the Royal Bank of Scotland symbolising everything that went wrong in the British economy over the last decade." A cold look at the facts, though, says HBOS' case is also "special" and that the bank is equally a symbol of past excesses. It's hard to spot a meaningful difference on Osborne's yardstick.
That's one for the forfeiture committee. For its part, the current commission may care to make a formal request to Crosby to take a smaller pension. Even Goodwin, eventually, did that. Why should Crosby expect to continue to receive a full index-linked whack of £572,000 a year?
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