Free Hubris: How HBOS Wrecked the Best Bank in Britain by Ray Perman, Alistair Darling Page A

Currency’.
    For all his willingness to try new things, Pattullo remained innately a cautious man. While trumpeting to a management conference that the Bank was now ‘advances led’ – that is
its growth was being propelled by its success at lending – he exhorted them to match this by bringing in more deposits. Although he sanctioned large corporateloans, he
wanted to be sure that there was a near-certain chance of the money being repaid and he often expressed his belief that banks ‘should not be in the risk business’.
    The philosophy that the Bank was a custodian of its depositors’ funds lay behind its governance structure. In addition to the main board, there were area boards in the East and West of
Scotland and in London, whose members included the responsible senior executives of the Bank and non-executives, usually the heads of prominent local businesses. Another board shadowed the
international department. They would scrutinise lending propositions, using their business expertise and local knowledge to challenge the executives. The main board also discussed lending proposals
in a process known by the Victorian term ‘homologation’. The board, drawn from the captains of the various industries with which the Bank dealt – oil, property, engineering,
shipping, investment – would closely question executives on what they were doing. ‘The idea,’ remembers one board member, ‘was not to second-guess the executives, but to
make sure we understood what they were proposing and also to make sure they understood it too.’
    The Bank board of the 1970s–1980s, exclusively male – white, middle-aged, middle-class with the occasional member of the aristocracy – would not pass muster today. ‘It
was non-PC,’ remembers one executive, ‘but it worked.’ In a small country like Scotland conflicts of interest must also have occurred frequently, with board members sitting in
judgement on the business plans of their competitors. But standards then were different. Directors were expected not be partisan or further their own interests and trusted not to do so.
    In the UK, the Bank’s success in oil and management buyouts was increasingly bringing it into London – although with typical Edinburgh disdain Tom Risk categorised it as ‘an
inefficient place to do a day’s work’. In the late 1980s came the ‘Big Bang’. The deregulation of financial services allowed clearing banks to move into previously
prohibited activities. There was a wholesale rush of banks buying stockbrokers, fund management firms and merchant banks. Names which had been a fixture of the City for decades or even centuries
disappeared into huge financial conglomerates and the city gents who had been partners in these firms retired with wealth unimagined even by their accustomed comfortable standards. In their place
came a new breed of younger, sharper, better educated and more aggressiveoperators. ‘My word is my bond’, the motto of the Stock Exchange, gave way to
caveat
emptor
. Long lunches gave way to sandwiches at the trading screen. Bank of Scotland stayed aloof from this movement, preferring to stay as a pure banking operation and in a statement of its
defiance, contributed to a capital-raising by Cazenove, the Queen’s stockbroker and the most conservative of the city institutions, which had decided to remain independent. The Bank and
‘Caz’, led by its senior partner, the patrician David Mayhew, appeared to share a similar ethos.
    The Bank also refused to be drawn into the increasingly fashionable proprietary trading of derivatives or other complex financial instruments which were forming a growing large part of
banks’ profit-generating strategies. A treasury dealing room had been set up in London, but Pattullo always regarded the operation, which lent and borrowed in the inter-bank market, as a
service department. Its job was to ensure that the Bank always had sufficient liquidity – that it never ran