Hector Sants, the chief executive of the Financial Services Authority (FSA) has said that the run on Northern Rock during the height of the financial crisis in 2008 was “preventable.”
Mr Sants, who will leave his post at the end of June, ahead of a restructuring of the UK’s financial regulatory system, told the BBC that he advised the Bank of England to allow Lloyds TSB to be granted a loan that would enable Lloyds to take over Northern Rock.
Mr Sants believes that if the central bank had allowed the loan it would have prevented Northern Rock going under. Mr Sants said he believed that a takeover would have changed the “general climate” and provided more security to investors.
However, Mr Sants said that Sir Mervyn King, the governor of the Bank of England told him that the money would not come from the central bank and the chancellor at the time, Alistair Darling said nothing.
Northern Rock was nationalised in 2008 after a run on the bank that saw queues of investors attempting to get their money out.
The FSA has been widely criticised in the aftermath of the financial crisis for doing little to warn of the problems that were building up from irresponsible lending and “casino” banking. The FSA did not advise against the Royal Bank of Scotland (RBS) taking over Dutch bank ABN Amro, nor Lloyds TSB’s ill-fated merger with HBOS.
Both these transactions contributed to both these banks needing bailouts.
In the aftermath of the banking crisis, the government has decided that the FSA will be overhauled, with many of its responsibilities being taken over by the Bank of England.
The government is to use the Financial Services Bill to create three new bodies to regulate UK financial services. These are the Financial Policy Committee (FPC), the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).
However, Mr Sants believes the new system will lead to “excessive” responsibilities for whoever succeeds Sir Mervyn as Governor when his tenure ends in 2013.
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