Two members of parliament have written to the Royal Bank of Scotland to ask for an explanation of its accounting methods, as they believe it may be distorting capital by as much as £25bn.
Former Tory front bencher David Davis and MP for Wycombe, Steve Baker, have both asked RBS to prove its accounts are not being distorted by the International Financial Reporting Standards.
According to a letter seen by The Daily Telegraph, the MPs argued at a meeting on May 24 that IFRS is “fatally flawed” as a system and that it is inflating the capital position of RBS and other banks.
The MPs say that while RBS accounts show a loss of £32bn, the Government Asset Protection Scheme accounts show a loss of £57bn from toxic assets alone.
Written by Gordon Kerr, a banking expert, the letter claims that the distortion in the accounts could be equivalent to as much as 50 per cent of RBS’s core tier one capital.
The MPs claim that the rules are at fault but also that RBS has applied them more extensively than other European banks. Baker is behind a Private Members Bill intended to make banks file accounts using the old UK Generally Accepted Accounting Principles, as well as IFRS, to force them to account for poor loans as well as failed ones.
In a response to The Telegraph, the bank says: “RBS is fully compliant with IFRS reporting standards.”