The Wall Street Journal-20080126-Credit Crunch- Report Finds U-K- Regulator Failed in Northern Rock Case
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Credit Crunch: Report Finds U.K. Regulator Failed in Northern Rock Case
LONDON -- The United Kingdom's Financial Services Authority "systematically failed" to properly regulate mortgage lender Northern Rock PLC, according to a report from the House of Commons' Treasury Committee that was to be released Saturday.
Recommending a series of policy changes, the committee gave a more mixed evaluation of the government's response to the lender's funding crisis, which led to the first run on a U.K. bank since 1866. And it was only moderately critical of the Bank of England's record in the crisis.
The report comes ahead of proposals by Chancellor of the Exchequer Alistair Darling to change the regulatory structure and improve its response to future crises.
The Treasury Committee's report is the first independent evaluation of what happened during the Northern Rock crisis.
The parliamentary committee's report said the FSA failed to supervise Northern Rock properly, allocating insufficient resources to monitor a bank whose "business model was so clearly an outlier."
Once problems were identified, the regulator failed to tackle the funding-model weakness, according to the report.
Responding to the report, the FSA said it will publish the findings of its own review in March. The FSA previously has acknowledged mistakes in its handling of Northern Rock.
Among suggested policy fixes, the committee said the Bank of England should take the lead if and when a U.K. bank gets into trouble. It recommended that a new unit be established at the central bank to identify and step in to prevent the disorderly failure of problem institutions.
