Bank chief accused of being 'asleep in the back shop'

Bank of England deputy governor John Gieve was accused today of being asleep on the job when the Northern Rock banking crisis erupted.

John, who is responsible for financial stability and a board member of the Financial Services Authority (FSA), drew fire from MPs on the Treasury Select Committee for not foreseeing the crisis that would envelop the mortgage lender.

Committee chairman John McFall, who said John was “asleep in the back shop”, attacked the deputy Governor for failing to spot the problems likely to befall Northern Rock because of the credit crunch in money markets, where the bank gets most of its cash for mortgage lending.

Mr McFall said: “Frankly, I do not think you are doing your job.”

The chairman said the deputy Governor, who had not read Northern Rock’s interim results in July, should have been aware of the situation much earlier.

John denied being caught off-guard and added that it was “not his job to get involved with talking with risk managers from individual banks”.

He insisted that the Financial Services Authority would have had the bank under close scrutiny and that no-one foresaw the way the crisis would develop.

He said: “In April, we identified that there were vulnerabilities in the system but we didn’t see exactly the path that they would lead back to Northern Rock. I don’t think anyone did,” he said.

But Mr McFall accused him of complacency, adding: “People were talking about Northern Rock, they were talking to me about Northern Rock, others were talking about Northern Rock so I think it’s absurd that you should come here and say you didn’t know anything about it – you are the guy in charge of financial stability.”

“The answers given to us this morning is that you weren’t very much alert, in fact it seems to me you were pretty laid back about it.”

John insisted he had been “alert to the dangers in the financial markets” but added: “If you say, did we see exactly how it would pan out and why it would impact on Northern Rock, which had no particular sub prime connections, no we didn’t see that.”

Bank officials first discussed the potential problems at Northern Rock with the FSA and the Treasury on August 14 – a full month before the emergency funding was offered to the mortgage lender.

John was away until the end of August due to a family funeral and a holiday in France, although he stressed that Bank Governor Mervyn King had told him it was not necessary to return.

He also defended the decision to wait until Monday to announce that the entire savings of Northern Rock’s customers would be underwritten by the Government, saying it had not been clear on Friday that that would be necessary to stop the run.

He said: “If we had known it was going to be essential on Monday, we might well have offered it on Friday, but that was not certain at that stage.”

John took on his current role in January 2006 after five years as Permanent Secretary of the Home Office from 2001 to the end of 2005.

In a 20-year career at the Treasury he also served as private secretary to three Chancellors – Nigel Lawson, John Major and Norman Lamont.