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Sunday 12th of October 2008
March 26, 2008

FSA to reveal Northern Rock crisis report


by Kay Murchie
”FSA

An internal review of how Northern Rock’s financial health was handled is to be published by the Financial Services Authority (FSA).

The review, which was executed by the FSA’s director of internal audit, is expected to conclude that too few staff were monitoring Northern Rock when its problems started and there was a lack of stability in the supervisory team.

The report is also expected to reveal shortcomings but not in the financial regulator’s overall approach to supervising banks.

It is understood that the review will say those supervising Northern Rock neglected to listen warnings from other areas of the FSA that conditions in financial markets were becoming turbulent.

A considerable increase in the amount of money set aside for monitoring banks is expected following the review. It is expected that the FSA will say it has learned from its mistakes and in the future, more resources will be devoted to monitoring important banks.

Labour MP John McFall, who is chair of the Treasury Committee, said the FSA had a problem keeping decent staff because they could earn more elsewhere in the City. They can shut the door on the FSA and walk along and get two or three times their salary and that is an issue here.

However, if we want a functioning market, if we want the confidence of London to be retained as a financial market, then we need good regulators and I think the FSA will realise that they’ve had insufficient quality to date, added Mr McFall.

Michael Bolton, of mortgage firm Edeus, said the FSA could not be held responsible for not having seen the global credit squeeze coming.

As a result of the US sub-prime mortgage crisis, Northern Rock got into refinancing problems and had to be rescued by the Bank of England.

After rejecting takeover bids from the board of Northern Rock and a consortium led by Sir Richard Branson’s Virgin Group, the Government rushed through legislation to nationalise Northern Rock last month.

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