Today's LIBOR Rates
1 M |
0.31563 |
 |
3 M |
0.47500 |
|
6 M |
0.68794 |
|
1 YR |
1.06438 |
|
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The Banks Behind LIBOR
The Royal Bank of Scotland
August 10, 2009
“Contributor banks” selected by the British Bankers’ Association (BBA) report their daily interbank lending rates for different maturities and currencies, and from these data the BBA computes the LIBOR indices. This is an overview of one of those contributor banks.
The Royal Bank of Scotland Group (RBS Group) is a contributor for each of LIBOR’s 10 monitored currencies. The institution is a holding company for banking and insurance interests with its core component, the Royal Bank of Scotland, originating in 1727. The RBS Group is the largest banking concern in Scotland and was, until the recent financial crisis, the second largest throughout the United Kingdom and Europe. It was number five in market capitalization among global banks and ranked as the world’s tenth largest company. Paralleling the United States government’s intervention in companies deemed “too big to fail,” the British government took a majority stake in the RBS Group in 2008.
The Royal Bank of Scotland plc originated in 1727 amid political and financial turmoil. In the 1690s, Scotland experienced huge losses with the collapse of a trading colony, the “Darien scheme,” in modern-day Panama. The fiscally weakened nation subsequently accepted political union with England, forming Great Britain in 1707. The British government approved the petition for the Royal Bank of Scotland partly to counter the Bank of Scotland, suspected of supporting the Jacobites who wanted a return of the Stuart kings to England, Scotland and Ireland. In 1728, The Royal Bank of Scotland became the world’s first to offer a form of overdraft protection.
The Royal Bank of Scotland began expanding from its Edinburgh base, opening a Glasgow branch in the 1780s and additional branches in other Scottish cities in the early 1800s. Throughout the rest of the century, the bank grew through mergers. It opened its first London office in 1874 with the city’s emergence as the world’s financial center. British banks successfully fought further inroads by Scottish banks into England, staying out of that territory in kind. The Royal Bank of Scotland resumed penetration of the British market with major acquisitions during the 1920s and 1930s.
The bank began international expansion in 1960 with a New York City office, following with branches in Chicago, Houston, Los Angeles and Hong Kong. In 1967, it unveiled Scotland’s first automated teller machine. In 1969, The Royal Bank of Scotland and National Commerce Bank of Scotland merged, compelling the much-larger new venture to reorganize as today’s holding company with its bank brands, including the original bank, operating as subsidiaries. Branding consequences of this reorganization were its logo of inward pointing arrows (denoting accumulation and concentration of wealth) and preferred name of “RBS Group” (avoiding the provincialism of the term “Scotland” as the company grew as a global enterprise). In the 1970s, RBS Group helped finance oil and gas exploration in the North Sea.
At the beginning of the 21st century, RBS Group completed its hostile takeover of National Westminster Bank (NatWest), the largest such acquisition in British banking history, making it the UK’s second largest banking group. Acquisitions continued during the decade, including a 10% stake in Bank of China and co-purchase of Dutch ABN AMRO.
In 2008, the global financial crisis that had closed or curtailed many of the world’s top financial institutions dealt a devastating blow to RBS Group. The company scrambled to make up for bad investments and the financial strain of the ABN AMRO acquisition. The British government stepped in by taking a majority stake in RBS Group which expanded from an initial 58% to 70%, becoming a de facto nationalization. RBS posted a £28 billion annual loss, the largest in British corporate history. Chief Executive Stephen Hester announced in August 2009 that RBS Group could expect two more years of “poor” results, with corporate resurgence possible in five.
The accuracy and relevance of LIBOR rests on its contributor banks. With The Royal Bank of Scotland Group, LIBOR has a constituent with a long history and broad global experience. Like many storied institutions, it has suffered during the recent economic crisis. The resurrection of the RBS Group is a study in the active partnership between governments and private business to staunch the worst downturn since the Great Depression.