MPs attack Treasury's Northern Rock failings over Rock

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The Independent Online

The committee of MPs scrutinising the Government's response to the Northern Rock crisis have accused the Treasury of being caught "flat-footed" by the bank's near collapse.

Edward Leigh, the chairman of the Public Accounts Committee, said: "The Treasury's lack of preparedness for dealing with the failure of a major bank was evident as early as 2004 but nothing much was done to remedy this weakness.

"It is not surprising therefore that, in September 2007, when there was the run on deposits at Northern Rock, the Treasury was caught flat-footed," he said. Mr Leigh's comments came as the committee published its 31st report of this year's session into the nationalisation of Northern Rock.

The committee was appalled that Northern Rock was allowed to continue awarding high-risk loans even after the Treasury had poured in billions of pounds to stabilise the group. "The taxpayer was therefore exposed to enormous risks and liabilities to an unknown degree," Mr Leigh said.

The run on Northern Rock started in September 2007, when it was the fifth largest lender in the UK. Issues emerged after it struggled to raise financing from rival banks after the credit crunch kicked in and, in effect, closed down the lending markets.

It was finally nationalised the following February, and the committee criticised the Treasury after it failed to carry out its own due diligence on the beleaguered bank's loan book or assess its optimistic forecast on house prices.

Mr Leigh concluded: "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.

"This involves making sure that, in future scenario testing, action is swiftly taken to deal with any shortcomings that emerge," he added.