‘It is somewhat ironical,’ the chairman of the Financial Services Authority told the Treasury select committee investigating the Northern Rock crisis, ‘that one of the responses is to try to seek from the rating agencies even more work and even more assessment.’ The paradox intriguing Sir Callum McCarthy was the suggestion that credit-rating agencies, having failed to predict Rock’s troubles, should now also produce liquidity reports on banks.
MPs on the select committee — about to produce a report that will be highly critical of the financial regulator — may themselves think it ironical that, having equally failed to foresee Rock’s fate, the FSA is being rewarded with an expanded role. Chancellor Alistair Darling proposes allowing it to gather more information on banks and to take management control of those that fall into difficulties, bypassing current insolvency procedures.
Increasing the FSA’s workload is perhaps Darling’s subtle punishment for allowing the biggest banking crisis for a generation, but the result is to reprieve an agency that has proved itself unfit for purpose.
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