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FSA to face the music over Northern Rock

25 March 2008 / by Rachael Stiles
Tomorrow the Financial Services Authority (FSA) is due to issue a report admitting its failings in monitoring Northern Rock and how this helped lead to a run on the bank.

Economic experts argue that higher levels of supervision and overseeing the viability of Northern Rock's business model which – was heavily exposed to the sub prime mortgage market – could have helped to prevent the first run on a British Bank for 100 years.

The Financial Services Authority has already admitted it was at fault for not detecting the bank's downfall was on the cards, and acting in time to prevent it; the report will embellish existing information with exactly what went wrong, and offer recommendations on how the process can be improved in the future.

The report is also expected to reveal plans for a new team of overseers, which could number 100, and will be responsible for providing expertise and support to banks and for monitoring their levels of exposure.

While the FSA will be admitting its own hand in the eventual nationalisation of a major British bank, it is not expected to probe too far into the conduct of Northern Rock's directors, or disclose information about the sale of shares in the bank just before it reached crisis point, by Adam Applegarth, then its chief executive.

Some MPs, while appreciating an enquiry into the situation, are meanwhile critical of the fact that the City's financial watchdog is conducting an internal inquiry into its own failings, rather than calling in an outside party.

A day after the report's release, the Prime Minister will meet with French President Nicolas Sarkozy to discuss putting pressure on banks in the future to be open about bad debts, rather than offering fragments of distorted information which could serve to cause an erosion of market confidence.

© Fair Investment Company Ltd