CHANCELLOR Alistair Darling hit back yesterday after being savaged by MPs over his handling of the Northern Rock crisis.
Jan 28 2008 by William Green, The Journal
The Chancellor admitted that changes were needed to prevent similar problems happening in future, but insisted the regulatory system introduced by the Labour government was not fundamentally flawed.
He said the issues at the bank had been “quite exceptional” and he had done the “right thing” by stepping in to protect savers.
Mr Darling said he would set out proposals next week for bolstering the powers of the Bank of England and the Financial Services Authority (FSA).
A report by the Treasury Select Committee at the weekend criticised both Mr Darling and the FSA for failures in relation to Northern Rock, saying the regulator committed a “systematic failure of duty” by not spotting the bank’s “reckless” business plan.
A delay in an announcement from Mr Darling guaranteeing customer deposits also “prolonged” the run on the bank by panicked customers last September, and meant more damage was “caused to the health of the company than might otherwise have been the case,” the report added.
But writing in a national newspaper yesterday, Mr Darling insisted that his proposals would “build on” rather than replace the systems introduced when Labour came to power.
He said: “The chairman of the FSA has been quite clear in saying that there are many things that should have been done far better.
“We need to tighten up the system and fill in any gaps, but the reforms I announce need to build on the reforms made 10 years ago, not reverse them. The model of the single regulator and an independent Bank of England is one that other countries are following.”
Mr Darling added that Northern Rock’s problems had been “quite exceptional”.
“When banks stopped lending to each other last autumn, Northern Rock suffered because its management had no plan B,” he said.
“We had to step in to support Northern Rock to stop its problems spreading to other banks and to protect people’s savings. This was the right thing to do. And having taken the decision to support Northern Rock, I am determined to see it through.”
Shadow Chancellor George Osborne said the crisis had seriously damaged the UK’s reputation for financial stability and as “a good place to do business” and said that Mr Darling’s plan to turn Rock loans into bonds was “a bad deal”.
