Did FSA fail to do enough over Northern Rock problems?
April 16, 2008
The Financial Services Authority, the UK’s financial regulator, which was set up seven years ago, has responded recently after accusations that the agency failed to do enough when dealing with the Northern Rock crisis back in August and September of this year. Northern Rock became the victim of the first run on a British bank in nearly 150 years, and according to some experts the FSA’s failure to do enough has resulted in the agency’s biggest challenge since it was set up.
One of the primary responsibilities of the FSA is to police banks, and according to many the agency did not do enough to prevent the crisis that hit Northern Rock recently. The Rock was the fifth largest mortgage lender in the nation, but after it became public knowledge that the bank had taken an emergency loan from the Bank of England savers withdrew over £2 billion worth of savings from the bank in just a few days, and share prices plummeted recently to an all time low.
According to officials from the Financial Services Authority a panic response to the situation would have been the wrong thing, as this could have harmed regulatory systems within the UK.
One official from the FSA stated: “One has to be cautious about rushing off after turbulence or a crisis to suggest legislative change. We’ve had, in this country, the Dangerous Dogs Act and, in the United States, Sarbanes-Oxley. There is ample evidence that legislation made in haste can create significant harm. One certainly needs to draw lessons but one shouldn’t rush.”
The FSA forms part of the tripartite system that dealt with the Northern Rock crisis, the other two being the Chancellor of the Exchequer, Alistair Darling, and the Bank of England.
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