Darling and FSA come under attack in Northern Rock report
25 January 2008 / by Verity G
The Financial Services Authority has been heavily criticised for failing to act fast enough in the Northern Rock fiasco, according to a new Government report due to be published tomorrow.
Commissioned by the Treasury and compiled by a select committee of MPs, the report has been examining the reasons behind the collapse of the Newcastle-based 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 became apparent.
Also under fire is Chancellor Alistair Darling who has been panned for his plan to award the FSA new powers controlling access to depositors' cash in the event of similar difficulties as well as granting it the authority to oversee the subsequent recovery. He also faces questions his lack of clarity regarding the amount of funding given to Northern Rock.
The report has also called for major reforms in the tripartite system of regulations which currently sees the Treasury, the Bank of England and the FSA operate in unison over financial matters. It argues that lack of communication, overt complacency and poor decision-making contributed to the Northern Rock crisis.
However, the worst condemnation has been saved for the FSA. Speaking to the Financial Times, Vincent Cable, Liberal Democrats Treasury Spokesman said:"The FSA has failed in every test since it was set up."
The chancellor is expected to review the report over the weekend before unveiling proposals next week outlining plans for a three month consultation into new banking legislation. This will include the introduction of an insolvency system which will secure depositors' savings in the event of a similar Northern Rock-style financial crisis.
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