While politicos will be taking public credit, and treasury officials will be hitting the phones, insisting privately that it was all their work, it is clear now that HM Bailout is an FSA-led affair.
In fact it’s a re-tread of the last major solvency crisis the British regulator had to deal with - albeit this time on a much grander scale.
Back in 2003, when Britain’s life insurance industry was caught up in a nasty market squall, sharp falls in equity markets forced the insurers into a downward spiral where firms had to sell shares simply to maintain their solvency ratios.
The only solution at the time was to apply a solvency whitewash - releasing a number of insurers from the rules. But the payback was fast and firm: a new “realistic” solvency regime was introduced, based on new extreme stress-testing, which hugely increased the size of the industry’s capital cushion.
There was one very prominent casualty at the time - Standard Life, which was forced to demutualise, parting company with its chief executive, Iain Lunsden, in the process.
Fast forward five years and we are clearly going through the same steps with Britain’s banks. Where the regulator stress-tested the insurers over falls in equity and bond prices, the tests now for banks have covered residential mortgages, commercial property and corporate defaults.
Which helps explain why those in officialdom knew Sir Fred Goodwin was shredded at RBS, even as the chief executive continued to insist that reports of his demise were wrong. Standard Life went through a similar process of angry denial.
Of course, the big difference now is that while Standard Life was forced to face up to the rigours of the capital markets, the problems at RBS are being socialised.
It does leave one nagging question: if the insurance sector needed to be realistic five years ago, why not the banks?
Related links:
Dear CEO… love, Hector - FT Alphaville
Standard Life chief replaced as review launched - FT story
