FIRST YORKSHIREMAN:
Because we were poor. My old Dad used to say to me, "Money doesn't buy you happiness, son".
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Watchdog admits failure over Rock
news.bbc.co.uk
"No amount of regulation can ensure that wrong decisions are never made," it said.
King pledges further market help
news.bbc.co.uk
"weakening labour markets"
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The UK financial watchdog, the Financial Services Authority (FSA), has admitted that it failed to regulate Northern Rock adequately.
The FSA said there had been "a lack of adequate oversight and review" by the agency of the troubled bank.
It said too few regulators were assigned to monitor Northern Rock, which ran into trouble in August.
The FSA said it would be overhauling its procedures as a result of the weaknesses identified.
Our supervision of Northern Rock in the period leading up to the market instability of last summer was not carried out to a standard that is acceptable
Hector Sants, FSA chief executive
See the FSA report here
Read Robert Peston's blog
Mervyn King's banking worries
Meanwhile, Mervyn King, the governor of the Bank of England, told MPs that world credit markets were "still fragile" and pledged to increase the Bank's short-term lending to UK commercial banks.
The Bank of England made £5bn in loans available to the banks last week, and plans another auction on Thursday.
Northern Rock
The Bank has joint responsibility with the FSA and the Treasury for monitoring the health of the UK financial system.
Newcastle-based Northern Rock was nationalised in February after the credit crisis forced it to seek a Bank of England lifeline to fund its mortgage loan book.
Last week it said it would cut about 2,000 jobs by 2011 and reduce its residential mortgage lending by half under plans to turn around its fortunes.
Northern Rock must also pay back Bank of England loans worth about £25bn.
Competence
Hector Sants, FSA chief executive, said that it was "clear that our supervision of Northern Rock in the period leading up to the market instability of late last summer was not carried out to a standard that is acceptable".
But he added that it was "impossible to judge" whether that would have affected the outcome in this case.
"I am determined through the programme of work that I am announcing today, that proper standards will apply to all significant firms supervised by the FSA," he said.
John McFall, chair of the Parliamentary Treasury Committee, called the report an "honest appraisal of the situation", which demanded a "root and branch reform of the FSA".
But he told the BBC there were "lessons to be learned" by the financial services industry, Bank of England and government too, not just the financial watchdog.
BBC business editor Robert Peston said a key part of the review was that the watchdog expected the Bank of England to bail out any malfunctioning banks when commercial lending froze last summer, which is why it did not feel the need to supervise it more stringently.
"Which is formal confirmation that the FSA was urging the Bank of England to pump money into the markets over the summer, but the Bank refused, fearing that it would be in effect bailing out the banks for their past recklessness," he added.
Improvement
The review, carried out by the FSA's director of internal audit, identified what it said were a number of areas for improvement in its supervision of banks.
As a result, it plans to beef up its team with staff that will regularly review the supervision of what it called "high-impact" firms to make sure procedures are being adhered to.
It also planned to upgrade its training of FSA staff and put more focus on assessing the "competence of firms' senior management".
It is hoped that these measures will prevent some of the key failings identified in the case of Northern Rock from occurring again.
The failings include:
A lack of sufficient supervisory engagement with the firm, in particular the failure of the supervisory team to follow up rigorously with the management of the firm on the business model vulnerability arising from changing market conditions.
A lack of adequate oversight and review by FSA line management of the quality, intensity and rigour of the firm's supervision.
Inadequate specific resource directly supervising the firm.
A lack of intensity by the FSA in ensuring that all available risk information was properly utilised to inform its supervisory actions.
FSA framework upheld
Despite its shortcomings, the FSA review upheld the watchdog's philosophy of operating within a framework of principles-based regulation, rather than rules-based.
And it suggested that ultimately the blame for the collapse of Northern Rock should sit at the feet of the bank's senior management.
"The boards and managements of regulated firms carry the primary responsibility for ensuring their institutions' financial soundness," the FSA said.
The British Bankers' Association (BBA), the UK banking body, agreed.
"No amount of regulation can ensure that wrong decisions are never made," it said.
It said it would work closely with the FSA to make sure that it hired "people with comparable skills" to those who work at banks and who are "able to look clearly at the whole business rather than concentrating on one or two particular areas".
Meanwhile, Robin Ashby, a former shareholder in Northern Rock, urged the government to take legal action against the disgraced former management of the bank for risking small investors' wealth, while being paid out vast sums when leaving the firm.
Northern Rock will not disclose the payout that chief executive Adam Applegarth received when he was forced to resign last year, but it is thought to be about £1.5m
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Bank of England governor Mervyn King has warned MPs that the credit crunch is having a bigger effect on the UK economy than previously thought.
He pledged to pump more cash into money markets to try and restore confidence in the UK's financial system amid the credit squeeze.
The promise comes after the Bank put an extra £5bn into the market last week.
Mr King also predicted that house prices would be "broadly stable" over the next few years, which he welcomed.
Across the world, confidence in financial markets is fragile
Mervyn King, Bank of England governor
He said that a slowdown in the housing market would eventually make houses more affordable for first-time buyers, as the ratio of wages to house prices returned to more normal levels.
Activity and prices had continued to weaken in both the residential and commercial property sectors, he added.
"That stems in part from the continued tightening of credit conditions reflecting the turmoil in financial markets," Mr King said.
'Matter of concern'
The governor told the Treasury select committee that the global financial crisis had "moved into a new and different phase".
It was possible to detect more concern among the MPC members about continued financial market difficulties
Peter Newland, Lehman Brothers
"Across the world, confidence in financial markets is fragile. It is not that banks, at least in the UK, have made loans that are likely to result in unsustainable losses," he said.
"The heart of the problem is not in the real economy. It is in the financial sector itself."
Uncertainty about the strength of banks' financial positions has grown because of their difficulties to secure funding against assets they hold, he said.
Despite the billions being pumped into money markets, the Libor rate - at which banks lend to one another - remains high.
Mr King said that it was a "matter of concern" that the efforts by central banks had so far failed to stem the problem.
Extra cash
The Bank of England would continue to offer extra money in the markets as a short-term way of boosting confidence in the system, he added
However he said that longer-term solutions would be discussed with UK banks.
Chief executives from HSBC, Royal Bank of Scotland, Barclays, Lloyds TSB and HBOS held a meeting with Mr King last Thursday.
The governor was understood to be alarmed by the slump in the HBOS share price on the back of erroneous rumours that the leading mortgage bank was in financial difficulties.
HBOS shares later recovered to finish the week ahead.
Fuel impact
Mr King told MPs that inflation was likely to rise to about 3%, driven by soaring oil and food costs, and rising household energy bills as well as the weaker pound.
However he was confident that it would come closer to the government's target of 2% in "the next couple of years".
Figures last week showed the official measure of the cost of living reached a nine-month high of 2.5% during February.
Some analysts said that the comments of Mr King and other members of the Bank's Monetary Policy Committee hinted towards an interest rate cut next month.
"It was possible to detect more concern among the MPC members about continued financial market difficulties," said Lehman Brothers analyst Peter Newland.
Tighter lending conditions had made the Bank more inclined to cut interest rates, Mr King said but he added that there were no plans to follow the US Federal Reserve in aggressively cutting interest rates.
Problems in the UK economy - especially in the housing and labour markets - were not as bad as across the Atlantic, he added.
Official retail sales showed that spending has been "surprisingly resilient" so far in 2008, Mr King added.
Another member of the Bank's Monetary Policy Committee, David Blanchflower, said he was concerned that the labour market could also weaken in coming months. |
