Darling admits regulators must be more alert after Rock crisis

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The Chancellor yesterday admitted shortcomings in the handling of events leading up to the Northern Rock crisis but held out against a radical redrawing of res-ponsibilities between regulators.

His comments came as the Bank of England's balance sheet showed a further £4.7bn of "other" loans, almost certainly made to Northern Rock under the emergency funding arrangement put in place last month.

Under questioning from MPs, Alistair Darling said improvement was needed in the way the Bank of England and the Financial Services Authority worked with each other. Under terms introduced by Gordon Brown when he was Chancellor, the FSA is responsible for supervision of institutions and the Bank is meant to ensure stability of the financial system.

"I would take a great deal to be persuaded that we should merge those two," Mr Darling told the House of Commons Treasury Committee. "What we need to do is make sure that the FSA and the Bank of England have got very clear responsibilities, and if there is any uncertainty as to who is doing what we must sort that out."

Both the FSA and the Bank must be more alert to the consequences for the wider financial system of problems at a single institution like Northern Rock, the Chancellor said.

He added that the FSA should have asked Northern Rock what it would do if the wholesale funding markets, on which it relied for its funding, dried up.

The Bank of England's figures indicate that Northern Rock has now borrowed £20.6bn from the central bank under the arrangement announced on 14 September. Simon Ward, the chief economist at New Star Asset Management, said the number suggests that Northern Rock has suffered a greater loss of deposits than was thought.

The committee has already grilled the Governor of the Bank of England, the heads of the FSA and Northern Rock board members about the Northern Rock affair. Officials from the Bank and the FSA will return for further sessions at the end of the committee's inquiry, which lasts until the end of the year.

The Labour committee member George Mudie pressed Mr Darling on how involved he was with the Bank of England's refusal to inject liquidity into the financial system earlier to combat the credit squeeze. Mr Darling said: "The decision was taken by the Governor having spoken to me about it... We had a number of discussions about it and that was his firm view." He said he supported the Governor's decision.

Vincent Cable, the Liberal Democrats' Treasury spokesman, has written to the Chancellor urging him to install new management at Northern Rock in return for the Treasury's billions. The bank announced a new chairman last week.

Chancellor gives himself 'wriggle room' on CGT

Despite interrogation by the Select Committee, the Chancellor refused to concede much ground on his pre-Budget report.

Mr Darling seemed unwilling to reconsider his changes to capital gains tax (CGT). "Whenever you make changes, some people will be pleased and some not so pleased... I'm very attracted to simplifying the tax system, and simplification is well worth pursuing." Mr Darling said reintroducing taper relief "necessarily adds to complexity". However, he also allowed himself some political "wriggle room" on CGT, saying he would "work with" interested parties.

The Tory MP Michael Fallon persistently sought an assurance from the Chancellor that he "ruled out" reconsidering issues such as taper relief and the impact on small business. When Mr Fallon declared that he took Mr Darling's answers as a "no", Mr Darling did not demur.

Sean O'Grady

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