The Treasury Select Committee has proposed giving powers to deal with failing banks to a single member of the Tripartite Authorities as part of a report into the near collapse of Northern Rock.
The report, entitled The Run on the Rock, has recommended a radical shake up of both the Bank of England and the FSA, including the creation of a new post to advice the Chancellor.
John McFall MP, chairman of the Treasury Committee, says: “Both have been found wanting with regard to financial stability. Accordingly the Committee has identified a need for a new office of Deputy Governor of the Bank of England and Head of Financial Stability.
“This individual should be one of the principal channels of advice to the Chancellor of the Exchequer on financial stability. If the government wants a fair wind for their reforms to the Tripartite arrangements in parliament, they must take seriously the cross-party recommendations in this report, which represent the will of parliament.”
The report says failing banks should be quickly identifiable through a series of quantitative triggers and there should be sufficient authority to take prompt corrective action.
Failing banks should have a special resolution regime established, to ensure smooth running while measures are taken to deal with the bank. It also says the deposit protection scheme needs to be simple and transparent.
The report also concluded Northern Rock’s directors were primarily to blame for the failure of the bank, but said the Tripartite Authorities did not prepare adequately for the public announcement of support to the bank.
The Treasury Committee also criticized communications between the Tripartite Authorities and recommends that they nominate a single person to speak on their behalf to reassure the public if a similar situation were to arise in the future.
The committee is due to publish a further report on financial stability and transparency in the near future.
Meanwhile, Liberal Democrat Shadow Chancellor Vince Cable has criticised the FSA’s handling of the affair, saying the regulator had damaged confidence in the wider economy.
“Northern Rock’s business plan was doomed to failure in anything other than the most favourable of credit market conditions, yet through either incompetence of negligence the regulators did nothing,” he says.
“The FSA’s inaction has not only destroyed the credibility of Northern Rock, but has also seriously damaged confidence in the wider economy.”
Commenting on the report, the FSA says: "As we have already acknowledged publicly, there were clearly supervisory failings in relation to Northern Rock and we are already addressing these.
"We will also examine carefully any further lessons that emerge from our internal review of the supervision of Northern Rock. We will be publishing the conclusions of that review in March.
"We intend to study carefully the Committee's report and will respond more fully in due course. The report will inform our input into the Tripartite Authorities' wider consideration of reform, which is currently underway."
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