[ by Melanie Gretchen ]

RBS executives faced the rate-manipulation scandal head-on as current and former executives of the British bank faced questions about the management failures that led to the rate-manipulation scandal.  Among others, CEO Stephen Hester and the former head of the firm's investment banking division, John Hourican, spent more than 3 hours testifying as to why traders were able to report false rates.

The bank, which is 82%-owned by British taxpayers after receiving a government bailout during the financial crisis, only just agreed to pay on 2/6 a $612 million fine to American and British regulators over rate-rigging.  On Monday, British politicians accused RBS executives of short-term profit and fostering a culture that prompted 21 traders to manipulate Libor for financial gain.  Further, the bank failed to monitor the submissions of benchmark rates, and employees continued to report false rates even after authorities began to investigate the wrongdoing.

In their defense, the senior executives said that Libor was not a priority;  after the multimillion bailout, Mr. Hourican said the bank was overextended, "in too many countries with too little capital."  At the time, senior managers focused on reviving the bank by selling off assets, reducing its work force and curbing exposure to risky trading activity.

"When we took control of the bank, it had had a cardiac arrest.  We had to prioritize dealing with the existential threat to the bank." -- Mr. Hourican, who resigned last week and renounced past and current bonuses totaling around $14 million in response to the scandal.

Moreover, both former and current executives testified they did not fully understand the extent to which Libor and other benchmark rates could be manipulated.  

Johnny Cameron, the former chairman of global banking and markets at the Royal Bank of Scotland who left the bank in 2008, said, "As captain on the bridge, we have to take responsibility for those events.  No one envisaged Libor could be fiddled by a cartel of traders at a number of banks."

Yet, in the aftermath of the scandal, investigations by American and British authorities revealed that promised controls by the bank to monitor Libor submissions had not in fact taken effect – to the ignorance of the senior executives.  On Monday, Mr. Hester admitted the bank had not improved internal compliance structures.

[C-I Note: What's more disturbing?  That the British bank wasn't prepared for rate manipulation or that its executives don't know how to run their bank?]

For further details, go to [Dealbook, 2/11/13].