FSA short-staffed on Northern Rock accountability
by Gill Montia
A request from The Times newspaper under the Freedom of Information Act has revealed that five of the seven Financial Services Authority (FSA) employees who had direct responsibility for the oversight of Northern Rock prior to the run on the bank, are no longer employed by the Authority.
The regulator, which is charged with ensuring that UK banks remain solvent, apparently failed to notice a serious flaw in the fast-growing mortgage bank’s business model.
Northern Rock depended heavily on the wholesale money markets, rather than on deposits, for its funding and as a result became an early victim of the credit squeeze and an embarrassment to both the Government and the FSA.
The FSA’s will be publishing a further report on the matter shortly but will be holding back some details of Northern Rock’s journey to nationalisation, to protect the legal rights of employees and respect the confidentiality of other UK banks, which have been examined for purposes of comparison.
Some of the FSA staff who worked on Northern Rock in the period before the crisis may have left before the run on the bank and it could be that high staff turnover was partly responsible for some of the oversights.
However, Northern Rock had not been the subject of a full FSA assessment during the 18 months before the Bank of England came to its rescue, last September.
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