BBA challenges Treasury on Northern Rock crisis

by Gill Montia

Story link: BBA challenges Treasury on Northern Rock crisis

The British Bankers’ Association (BBA) has written to the Treasury Select Committee proposing that the Bank of England should cut its interest rates on emergency loans.

The BBA believes that during a period of crisis the current penalty rate of 1% above base rate should be dropped.

The Association is also demanding an investigation into why the Financial Services Authority (FSA) was slow to recognise the liquidity problems recently experienced by Northern Rock.

The FSA has a system for assessing a bank’s liquidity but apparently was not alerted to the impending crisis before September 14, when Northern Rock approached the Bank of England for unlimited emergency credit.

The BBA is concerned that the banking sector will have to pay larger levies to fund the Government scheme that guarantees money in savings accounts.

The Treasury is currently reviewing the guarantee scheme, which was extended during the run on Northern Rock, and the BBA is keen to establish how the regulatory process could have prevented the Government from having to guarantee the bank’s accounts in the first place.

The current tripartite system of financial regulation, which involves the Financial Services Authority, the Treasury and the Bank of England has been criticised as being ineffective throughout the Northern Rock crisis.