Too big to function?
MAJOR BANKS are often described as being too big to fail, given their systemic importance in the financial system. But are Royal Bank of Scotland and its Ulster Bank subsidiary too big to work properly? That’s one of the many unanswered questions that millions of customers of the RBS group have been asking since June 19th, when some found they could neither access their online accounts nor easily withdraw their own money at the bank’s branches.
In the case of Ulster Bank, half of its 1.1 million customers in the Republic have been affected by the IT failure, with the technology problem unlikely to be fixed before July 16th. Given the bank’s dismal forecasting record – where twice it has wrongly predicted an early resolution to its difficulties – there are grounds for scepticism.
What began as the failure of a routine upgrade to the parent bank’s software has since resulted in a massive downgrade in Ulster Bank’s services to its customers. This has meant financial hardship and personal inconvenience for many; with salary cheques and social welfare payments delayed, and with bills unpaid. Such uncertainty has left some small firms in difficulty, and obliged customers to join long queues at the bank’s branches to complete transactions.
For Ulster Bank, which has been serving Irish account holders for 176 years, this has not been the bank’s finest hour. This sorry tale of managerial and technical incompetence – by the parent company and its subsidiary – is destined to become a case study in crisis mis-management. Ulster Bank’s reputation has been badly damaged, albeit with most blame attributable to the inept way RBS has directed and managed matters. The Central Bank’s director of consumer protection Bernard Sheridan summed it up: the lack of contingency planning by the bank was “appalling”; its customer communication “exasperating”, and its overall performance, quite simply, “unacceptable”. Few could disagree.
Nevertheless, the reluctance of the Central Bank to intervene sooner also deserves criticism. Ulster Bank, which accounts for some 11 per cent of RBS’s customer base, has had a low priority status, both in the parent bank’s resolution of its technical problems, and in its communications with its Irish customers. RBS has claimed that for technical reasons Ulster Bank’s position – where it was last in the queue in processing the backlog of data – could not have been avoided. On Wednesday, for the first time, Ulster Bank said it would pay compensation to customers affected by the delays. The Central Bank, rightly, has now become more assertive, both in demanding that Ulster Bank fully discharge its obligations to its customers and also insisting that no customer’s credit rating is adversely affected by the bank’s failure to process payments. Above all, what the IT debacle at RBS illustrates, as the Central Bank recognises, is the need for adequate contingency planning by Irish banks to ensure that where a systems failure occurs, the damage is contained, and the financial loss minimised by having an adequate backup and recovery system in place.