Is The Banking Crisis Over?

It seems a couple of months is a long time in banking terms. Last up we had a good set of results from Barclays, who we don't own. This time around it was RBS, and we own above 70% of them.

The results were good enough to have Robert Peston declaring that the worst is over. I am not so sure we are getting the right messages.

RBS's results showed it generated record income over the first 3 months of £9.7bn - very similar to Barclays. The amazing recovery in performance came from a stunning performance in the RBS Investment Banking arm. Again, very similar to Barclays. Perhaps the most amazing is that RBS has managed to hold onto and even gain some new customers. Naturally, most of this income was wiped out by write offs for loans, investments and bad debts - around £5.7bn of them. The end result was a small loss of £44m which would have been 50% less if there had not been pension top ups for Goodwin and the Deputy CEO.

At this point Peston coos that RBS is on the road to recovery which he believes is good for us as we will see our 70% stake bring us a profit at some point.

The Devil Is In The Detail

With the income at RBS and Barclays riding against the markets, there has to be warning bells about how these banks are again making their money. The FSA should be all over these results and understanding exactly what sort of deals have beat the markets and made serious money when everyone around is struggling. It really is not rocket science but it has to be that the banks are up to their old tricks again of conjuring massive profits out of nowhere.

I don't pretend to know enough about investment banking to understand whether these are good profits or bad but my instinct tells me we should be scrutinising every transaction and deal to drill down to the detail so that we are satisfied that the profits are real and sustainable.

The issue has always been that now we have rescued the system, we have to stop them from going back to what they did before because the country, the taxpayers, and industry simply cannot afford a repeat of the disaster of the last 12 months.

Warning bells are sounding in my head. I think we are setting ourselves up for another future crash of similar proportions. We have let the banks carry on without significant reform or augmenting the regulatory bodies. In fact, very little has changed at all.