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| Version 1 | Version 2 |
|---|---|
| FSA to 'learn lessons' from Rock | FSA to 'learn lessons' from Rock |
| (3 days later) | |
| The chief executive of the Financial Services Authority (FSA) has accepted that there are "lessons to be learned" from the regulation of Northern Rock. | |
| Hector Sants was giving evidence to the Treasury Select Committee which is investigating the problems at the bank. | Hector Sants was giving evidence to the Treasury Select Committee which is investigating the problems at the bank. |
| "In terms of the probability of this organisation getting into difficulty we had it as a low probability," Mr Sants told the committee. | "In terms of the probability of this organisation getting into difficulty we had it as a low probability," Mr Sants told the committee. |
| "When events transpired that proved to be incorrect," he added. | "When events transpired that proved to be incorrect," he added. |
| Poisonous | Poisonous |
| The chairman of the FSA, Sir Callum McCarthy, was also asked whether relations with the Bank of England had become "poisonous" as a result of the Northern Rock crisis. | The chairman of the FSA, Sir Callum McCarthy, was also asked whether relations with the Bank of England had become "poisonous" as a result of the Northern Rock crisis. |
| A report in the Financial Times last month quoted unnamed FSA officials blaming the Bank of England for the crisis - the first run on a British bank in more than 100 years. | A report in the Financial Times last month quoted unnamed FSA officials blaming the Bank of England for the crisis - the first run on a British bank in more than 100 years. |
| "I have good and clear relations with the governor," Sir Callum said | "I have good and clear relations with the governor," Sir Callum said |
| But he avoided questions about whether he urged the Bank of England to provide more funding to the banking market. | But he avoided questions about whether he urged the Bank of England to provide more funding to the banking market. |
| Stress testing | Stress testing |
| The FSA is responsible for supervising financial institutions such as banks and it was asked why it was only doing a full review of Northern Rock's finances every three years. | The FSA is responsible for supervising financial institutions such as banks and it was asked why it was only doing a full review of Northern Rock's finances every three years. |
| Conservative MP Michael Fallon said: "You are dealing with a bank whose lending has quadrupled from £25bn to £100bn - it was taking one in five mortgages - and you were not doing a full assessment for three years." | Conservative MP Michael Fallon said: "You are dealing with a bank whose lending has quadrupled from £25bn to £100bn - it was taking one in five mortgages - and you were not doing a full assessment for three years." |
| Mr Sants replied: "I think there are lessons to be learned to be learned here with regard to our supervisory practice and I do think we need to look at our engagement with this company." | Mr Sants replied: "I think there are lessons to be learned to be learned here with regard to our supervisory practice and I do think we need to look at our engagement with this company." |
| The last FSA full review of Northern Rock was in February 2006 although FSA officials had visited the company in July to question their "stress testing". | The last FSA full review of Northern Rock was in February 2006 although FSA officials had visited the company in July to question their "stress testing". |
| This is a process where banks and regulators examine what would happen to a bank's finances in a range of crisis scenarios. | This is a process where banks and regulators examine what would happen to a bank's finances in a range of crisis scenarios. |
| Mr Sants agreed that there were problems with the stress testing which were not picked up earlier. | Mr Sants agreed that there were problems with the stress testing which were not picked up earlier. |
| "We were uncomfortable with their scenarios but regrettably it was late in the day," he said. | "We were uncomfortable with their scenarios but regrettably it was late in the day," he said. |