Northern Rock crisis due to failure of regulation

10.30.00am UTC (GMT +0000) Mon 28th Jan 2008

Northern Rock

The Financial Services Authority is guilty of a "systematic failure of duty" over the Northern Rock crisis, the Treasury select committee has said. In a report published on Saturday, the cross-party committee, which has a majority of Labour MPs, said the UK's financial watchdog should have spotted the bank's "reckless" business plan.

Alistair Darling will on Wednesday launch a consultation on ways to toughen Britain's rules on banking supervision. According to the FT, the Chancellor will propose more powers for the Financial Services Authority and a statutory footing for the Bank of England's role in safeguarding financial stability.

Vince Cable, Liberal Democrat Chancellor said "The run on Northern Rock was not only a failure of the bank, but also a failure of regulation. Northern Rock's managers behaved like a bunch of cowboys and the FSA did nothing to rein them in, or even appear to see there was a problem. It is important that the financial sector acts to ensure this never happens again. We need procedures for more active controls of bank lending, relying not only on interest rates but also capital adequacy requirements to prevent unsustainable growth in lending."