UK watchdog faces flak over Northern Rock
The City regulator was on Thursday facing criticism from MPs and investors that it failed in its job by not tackling Northern Rock’s aggressive financial practices before the bank ran into trouble.
Questions over the competence of the Financial Services Authority moved to the fore even as Mervyn King, Bank of England governor, was fighting to defend his own performance in the handling of the debacle. Mr King told MPs on the Treasury select committee that legislative shortcomings prevented him from stopping the bank run.
John McFall, the committee chairman, described Mr King’s testimony as “unconvincing”, and established a formal inquiry into the mess, which was on Thursday still driving down shares in the banking sector.
But much of MPs’ concern related to the FSA’s role. FSA officials acknowledged on Thursday night that the regulator had not foreseen a total drying up of liquidity in the money markets, nor had prepared banks for such an eventuality.
“The FSA has a lot of questions to answer ... about why Northern Rock wasn’t identified as the most obvious risk,” said Michael Fallon, committee vice-chairman, adding: “Callum McCarthy, [FSA chairman], now has arguido status” – Portuguese for official suspect, a reference to the Madeleine McCann case.