Do the issues at RBS show that Fred Goodwin’s era was 1000% incompetent?

I know that it’s getting nearer to Christmas and the party season has kicked in, but yes, I’m still here blogging about banking business.

There were lots of headlines about the second major RBS payments glitch last week.  Here are just a few:

• RBS suffers IT glitch on Cyber Monday, New Zealand Herald-3 Dec 2013
• RBS and Natwest customers suffer payments glitch, Which?-3 Dec 2013
• RBS offers compensation after payment glitch, FRANCE 24-3 Dec 2013
• RBS IT 'glitch' leaves bank facing £1bn bill, Telegraph.co.uk-3 Dec 2013
• RBS to compensate users for Cyber Monday paymentglitches, IT PRO-3 Dec 2013
• RBS/NatWest meltdown: your questions answered, Telegraph.co.uk-3 Dec 2013
• Cost cutting to blame for RBS's Cyber Monday card glitch, says union, The Guardian-3 Dec 2013
• RBS admits decades of underinvestment after latest IT glitch, The New Age Online-3 Dec 2013
• RBS blames Cyber Monday glitch on inadequate IT investment, FierceFinanceIT-5 Dec 2013
• FCA investigation into RBS crash last year not complete as new IT ..., ComputerWeekly.com-6 Dec 2013
• RBS's NatWest Website Hit by DDoS Cyber Attack Days After IT Glitch, International Business Times UK-6 Dec 2013
• RBS computer system 'targeted in cyber attack', Express.co.uk-7 Dec 2013

As can be seen, these headlines are global and across all media: public, industry and technology.

This is partly because a bank that cannot process a payment is bit like a restaurant that cannot serve any food, but also because this particular bank has suffered this problem twice.

Now I’ve written quite a lot about that:

• What really happened when the RBS payment system failed 
• More reaction to the RBS glitch 

As well as quite a lot about bank IT risk generally:

• Santander's systems irritate once more, August 2010 
• Banks are like a 1,000 mph car, July 2011 
• Is banking technology 'biological suicide'? August 2012 

The bottom line is that banks are technology companies, and their core offer is based upon technical competence and excellence.  It is not just operational risk exposures that technical incompetence exposes, but far more issues of reputational risk.

As discussed by Alex Hawkes in last week’s Mail on Sunday. banks’ payment systems are like airlines.   If they never crash, you’re happy.  If an airline has a crash once, you get a little nervous but it does not impact your loyalty.  If they crash more than once, and very visibly as RBS’s crash has demonstrated, then you get much more nervous and think about switching.

And bearing in mind that the UK now has a much easier way to switch these days, with Santander and the Nationwide winning the switching battle, the exposures for RBS’s retail business are major.

Add on to this the issues in their investment banking business:

Impending oblivion for RBS investment bank, International Financing Review, November 2013

And commercial banking:

Royal Bank of Scotland faces claims of 'killing off' small firms, The Telegraph, November 2013 

And you wonder how this bank, once the world’s largest and most admired under Fred Goodwin, ever reached the stage it has reached.

Oh, maybe it had something to do with Fred the Shred's cost-cutting focus?

Oh, and what is that stage?

Picture stolen from J. R. Ensey’s blog