Contingent liabilities are the hidden credit lines which banks allocate for borrowers when they enter into interest rate swaps / fixed rates. It has now come to light that employees at RBS altered customers’ files prior to the independent review process into the mis-selling of ‘toxic’ interest rate hedging products.
Abhishek Sachdev, founder and CEO of Vedanta Hedging spoke with The Independent about contingent liabilities and the extent of the damage they caused to thousands of borrowers:
As contingent liabilities increased, they ruined customers’ credit positions. This was a key reason that the bank stopped lending to many customers in the years after 2009. It led to the failure of large numbers of businesses.
Most customers had no idea how a swap worked but they knew how much they had borrowed and how much their property was worth.
If the bank suddenly told customers their debt was £9m when they’d signed a loan agreement for £5m, customers would know something was wrong. This was why the bank could never reveal the true reason it was withdrawing support.
It is more important than ever that borrowers understand all the charges and liabilities of any fixed-rate loan and swap / cap before they enter into the loan.
You can read the full article by clicking on the following link: https://www.independent.co.uk/business/rbs-mis-selling-interest-rate-hedging-document-tampering-b421984.html#r3z-addoor