Jan. 26 (Bloomberg) -- The U.K. Financial Services Authority failed in its supervision of Northern Rock Plc, and the Bank of England should have done more to soothe money markets before a run on the lender, a panel of lawmakers said.
``The FSA appears to have systematically failed in its duty as a regulator to ensure Northern Rock would not pose such a systemic risk,'' Parliament's Treasury Committee said today in a report. ``This failure contributed significantly to the difficulties, and risks to the public purse, that have followed.''
The lawmakers said the Bank of England ``should have adopted a more proactive response'' to the seizing up of money markets in August, which led to Northern Rock's funding difficulties. The panel called for a new position at the central bank to take charge of the U.K.'s financial stability.
The report puts most blame on the regulator and less on the central bank and the Treasury for the panic at Northern Rock, the first run on a British bank in 140 years. Prime Minister Gordon Brown has faced criticism from bankers and economists for designing the so-called ``tripartite'' three-pronged system of financial oversight when he was chancellor in 1997.
``Planning must begin immediately so that on any future occasion it is known who will speak for the authorities and that their message is clear and reassuring,'' John McFall, chairman of the Treasury Committee, said in a statement.
`Disastrous' Run
Simon Hayes, an economist at Barclays Capital who formerly worked at the central bank, said that the bank crisis was ``disastrous'' for the U.K.'s reputation.
``The sheer ignominy generated by Northern Rock should be enough to ensure that all three institutions are on their toes from now on,'' he said. ``That matters more than the details of who gets what responsibilities.''
The Financial Services Authority said in a statement that it had already acknowledged that there were ``clearly'' failings in the supervision of Northern Rock.
``We are already addressing these,'' the statement said. ``We intend to study carefully the committee's report and will respond more fully in due course.''
No government official has yet resigned for the bank crisis, which led to former policy maker Richard Lambert likening Britain to a ``banana republic,'' and a government rescue which has cost 25 billion pounds ($49 billion) in loans.
Verdict on Gieve
Today's report didn't criticize anyone by name. In September, McFall rounded on Bank of England Deputy Governor John Gieve, saying he wasn't doing his job and seemed ``pretty laid back.'' Gieve defended himself, saying: ``I do not think I was asleep at the wheel.''
Michael Fallon, the ranking opposition Conservative member of the panel, stopped short of calling for the resignation of Gieve, a former official at the Home Office and the Treasury.
``The deputy governor, from now on, should be someone with senior banking experience,'' Fallon said in an interview. ``You can't have someone like Gieve, a civil servant specifically without banking experience.''
The panel recommended the creation of a new post of Bank of England Deputy Governor and Head of Financial Stability, who would be an adviser to the Treasury and not serve on the bank's rate-setting committee. The official would have powers to send inspectors into financial institutions, and in ``more extreme circumstances,'' to order temporary government control.
The proposal contrasts with Chancellor of the Exchequer Alistair Darling's plans to increase the FSA's powers for fixing failing banks, and echoes the opposition Conservative Party's call for more financial oversight by the Bank of England.
Darling will present his proposals to Parliament this week. Brown will meet with officials from France, Germany and Italy on Jan. 29 to agree to measures on the assessment of risks to financial markets.
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