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UK watchdog, minister under fire over Northern Rock PDF Print E-mail
Monday, 28 January 2008

Agence France-Presse . London

Britain's financial watchdog and finance minister came under fire from lawmakers in a hard-hitting report Saturday, as they accused both of failings over the troubled Northern Rock bank.

The lower House of Commons Treasury Select Committee said the Financial Services Authority was guilty of a 'systematic failure of duty' by failing to spot the Newcastle-based bank's 'reckless' business plan.

Chancellor of the Exchequer Alistair Darling was meanwhile said to have prolonged a run on the bank last year by delaying an announcement guaranteeing customer deposits, they added.

That was 'more damaging to the health of the company than might otherwise have been the case', the oversight committee said. Northern Rock was forced to apply for emergency central bank loans last September due to the squeeze on credit on the global finance markets, triggering panic among savers who queued for days to withdraw funds.

It currently owes the Bank of England at least 26 billion pounds (35 billion euros, 51 billion dollars) as efforts continue to find a private sector buyer.

On the FSA, committee chairman John McFall, from the governing Labour Party, said: 'The failure of Northern Rock, while primarily a failure of its directors, was also a failure of its regulator.'

'The FSA appears to have systematically failed in its duty and this failure contributed significantly to the difficulties and risks to the public purse that have followed.'

The FSA, Bank of England and Treasury decided to announce funding for Northern Rock on Monday September 17 — two weeks after Darling had agreed it in principle and one week after emergency funding was deemed necessary. The Treasury Select Committee said this tripartite committee should have 'strained every sinew' to finalise the support operation and announce it within hours, rather than days, of Darling's funding decision.

In practice, the government announced it was guaranteeing savings at 5:00 pm on September 17 — 24 hours after Darling made the decision and after the stock markets had closed.

Lawmakers also criticised the FSA for inadequately supervising Northern Rock's business model, which relied on wholesale lending rather than deposits to fuel rapid growth.

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