British MPs grill watchdog over Northern Rock crisis

The Financial Services Authority’s role in the Northern Rock crisis will come under fresh scrutiny today when heads of the City of London watchdog appear for a second round of questioning from MPs in the UK.

FSA chairman Callum McCarthy and chief executive Hector Sants will face MPs in the cross party Treasury Select Committee in what is set to be another grilling on Northern Rock and the credit crunch.

The FSA bosses received a mauling in October, which saw the regulator admit that it needed to improve its monitoring after Northern Rock’s high profile troubles.

Mr Sants and Mr McCarthy told MPs that “lessons needed to be learnt”.

The FSA revealed that the mortgage bank had not been due a full risk assessment until three years after its last one, conducted between December 2005 and February 2006, and had been deemed low risk.

Mr Sants added the FSA was reviewing its procedures in response to the fiasco.

But the FSA heads are thought to be in line for a further gruelling session today.

Some members of the Committee are said to believe that the FSA was largely responsible for the regulatory confusion leading up to Northern Rock’s move to call on the Bank of England as lender of last resort.

News of the emergency loan caused retail savers to panic and withdraw funds from Northern Rock in the first run on a UK bank in nearly 150 years.

Also due to appear before the Commons Committee today is Loretta Minghella, chief executive of the Financial Services Compensation Scheme – the scheme charged with protecting savers in the UK.

The scheme came under considerable fire amid the Northern Rock debacle when it was found not to offer savers enough reassurance and was thought to have further fuelled the bank run.

The Government had to step in and guarantee 100% of saver deposits to help ease the queues of savers lining up to withdraw money and the Treasury has since pledged to completely overhaul the scheme.

The FSA chiefs and Ms Minghella are being questioned as part of the Committee’s ongoing inquiry into financial stability and transparency, which is set to go into next year.

Last week, MPs quizzed bosses of investment banks UBS, Goldman Sachs, Citigroup and Deutsche Bank over their role in the credit crunch which led to Northern Rock’s funding woes.

Northern Rock’s accountants PricewaterhouseCoopers were also in the firing line, accused of failing to spot risks within the lender’s funding model.