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Friday 21st of November 2008
January 28, 2008

Chancellor criticised for his handling over Northern Rock


by Kay Murchie
”Chancellor

Chancellor Alistair Darling and The Financial Services Authority (FSA) are under attack in their handling with crisis-torn bank, Northern Rock.

A new Government report due out today investigates the reasons behind the collapse of the bank and is expected to criticise both the FSA and the Bank of England’s roles, including the decision not to inject liquidity into the banking system last summer when the effects of the credit crunch first emerged.

Mr Darling has defended his position and insists he has done the right thing to protect savers’ investments. He has pledged to outline plans to strengthen the Bank of England and the FSA.

The report also examines Mr Darling’s lack of clarity regarding the amount of funding given to Northern Rock. The report adds that a delay by Mr Darling in guaranteeing Rock customers’ deposits had meant more damage was ‘caused to the health of the company than might otherwise have been the case‘.

The FSA has already admitted failings with regard to Northern Rock and said it was addressing them.

The Government has outlined plans to turn the £25 billion lent to Northern Rock by the Bank of England into bonds guaranteed by the government.

The bonds will be sold to private investors under the plans, drawn up by investment firm Goldman Sachs, potentially to speed up a private sale.

This would avoid nationalisation of the bank but it is not yet known if private buyers will have the funds required for the deal.

It is understood that the chancellor will review the report before revealing proposals this week outlining plans for a 3-month consultation into new banking legislation. It is expected to include the introduction of an insolvency system which will secure depositors’ savings in the event of a similar Northern Rock-style financial crisis.

There are several bidders for Northern Rock who have until the deadline of 4 February to come forward with rescue proposals.

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Story link: Chancellor criticised for his handling over Northern Rock


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