Treasury rapped over Northern Rock risk

26 Jun 09
The Treasury exposed the taxpayer to enormous risks in its dealings with the nationalised bank Northern Rock, the Public Accounts Committee has found.

By Alex Klaushofer

26 June 2009

The Treasury exposed the taxpayer to enormous risks in its dealings with the nationalised bank Northern Rock, the Public Accounts Committee has found.

In a report published on June 25, the PAC found the Treasury allowed the bank to make around £750m of high-risk loans while providing it with emergency support from September 2007. It also failed to evaluate the financial risks of nationalising the bank in February 2008.  

‘The Treasury did not know enough about what it was taking on. In nationalising Northern Rock, the Treasury was taking on enormous risks on behalf of the taxpayer,’ the report said.

It condemned the Treasury for failing to carry out its own due diligence to scrutinise the company’s loans book, relying instead on work by the bank’s own advisers and the Financial Services Authority. The FSA admitted its oversight of the bank had been inadequate in March 2008.

The PAC said that while the Treasury had been aware of shortcomings in its arrangements for dealing with a bank in difficulty since 2004, it had taken a ‘leisurely’ approach to remedying these failings.

PAC chair Edward Leigh said: ‘Even though the Treasury was pouring in billions to stabilise the bank, Northern Rock was allowed to carry on awarding high-risk loans to the tune of £750m. The Treasury must never again be so ill-prepared. As this crisis has shown, the Treasury’s ability to respond effectively to future financial crises must be maintained at the highest level.’

Did you enjoy this article?

AddToAny

Top