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Thursday 11th of October 2007
October 10, 2007

FSA concedes Northern Rock errors

by Gill Montia

Story link: FSA concedes Northern Rock errors

The Financial Services Authority (FSA) has admitted that no thorough supervisory check had been carried out on Northern Rock in the 18 months before its liquidity crisis became headline news, in August.

The last full risk assessment of the bank was carried out between December 2005 and February 2006, after which FSA staff visited the bank once every two to three months.

Particular aspects of the bank’s operations were reviewed during these visits, including arrangements for managing credit and liquidity risk.

These and other facts surrounding the Northern Rock crisis came to light yesterday, when FSA chiefs faced questions from a Commons Treasury Committee.

The authority conceded that it had incorrectly assessed the risk in Northern Rock and was to an extent responsible for the subsequent damage caused to the financial system it is meant to regulate.

The tenor of questioning adopted by MPs could be described as hostile, as Sir Callum McCarthy, the FSA chairman, and Hector Sants, the FSA chief executive, attempted to explain the reasons for the run on Northern Rock, which was the first on a UK bank for 140 years.

It emerged that there had been differences of opinion between the Bank of England and the FSA on the need for an early injection of cash into Northern Rock and Mr Sants stated that he believed the crisis might have been avoided if the Bank of England had acted earlier.

 

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