FSA may not be given additional powers

Grovelawn Financial News 25/01/2008

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Leaks from long awaited Northern Rock episode

Leaks from a report to be published on Saturday by The Commons Treasury Select Committee are said to reveal that the Financial Services Authority should not be granted extra powers. The powers would have given the authority the right to intervene to help distressed banks.

The Select Committee is expected to reveal that it does not think the FSA deserves the powers as it was unable to recognise the flaws in the business model adopted by Northern Rock and prevent a run on the bank.

The extra powers, proposed by the Chancellor, Alistair Darling, would also have included allowing the FSA to step in if a troubled bank required an emergency loan from the Bank of England and give it the rights to seize and protect cash deposits and repay them to customers.

The FSA's chief executive, Hector Sants, said "The currant FSA team is well equipped to give market expertise. I don't believe that a lack of understanding of the market is the issue here".

The report says that the levels of communication between the Treasury the bank and the FSA were poor, there was complacancey and clumsy decision making. The board of Northern Rock are singled out for its continued belief in what it sees as a flawed and defective business model.

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