Lack of supervision over Northern Rock crisis
April 10, 2008
In a recent admission the Financial Services Authority has admitted to failing the stricken bank Northern Rock when it fell into crisis last year and became the victim of the first run on a British bank in nearly 150 years. The FSA admitted that it had failed Northern Rock on a number of levels, in particular relating to the supervision and monitoring of the bank and its situation. Northern Rock has now passed into public ownership following a string of unsuccessful private sale talks.
When the mortgage lender fell into trouble last year a great deal of controversy arose over whether the government and authorities had done enough to help the bank in the early stages of the crisis before the situation got out of hand. Officials from the FSA now state that the authority failed to pick up on the warning signs that the bank was facing severe problems, and did not do enough to monitor and supervise the situation.
In a damning report the FSA admitted to being ‘asleep on the job’ and listed a number of failing in its dealings with Northern Rock. These mainly related to lack of supervision and monitoring of the bank as it plunged into crisis. In the summer of last year the bank was forced to take an emergency loan from the Bank of England, and once this became public knowledge share values plummeted and savers withdrew billions of pounds worth of savings from the bank in the space of a few days.
The FSA now states that a programme has been devised to ensure that the same mistakes do not occur in the future. One official said: ‘This programme is the response of the management of the FSA to the weaknesses identified in the particular case of the supervision of Northern Rock. It is clear from the thorough reviews carried out by the internal audit team that our supervision of Northern Rock in the period leading up to the market instability of last summer was not carried out to a standard that is acceptable, although whether that would have affected the outcome in this case is impossible to judge.’
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