Conservative Party leader David Cameron says he fully supports the way the Bank of England and the FSA have handled the Northern Rock funding crisis but says there are important questions which need answering.
Speaking at a KPMG event this week, Cameron said the immediate priority was to reassure investors about the safety of their deposits but said more information was needed about the chain of events that led to the Bank’s intervention.
Cameron said: “This is the first time that a system based on the split roles of the FSA and the Bank of England has been seriously tested, and we must ensure that we learn whatever lessons emerge. Over the months ahead we need answers to these questions, and take any necessary action to ensure that our regulatory structure keeps step with modern financial markets.”
If Parliament was sitting, Cameron said the Chancellor Alistair Darling would make a full statement about what has happened and the government’s approach to this.
But Cameron said it would be quite wrong for Parliament to be recalled as this would “only add to a sense of alarm”.
He said: “But it is incumbent on the Chancellor to make such a statement and set out the Government’s view on these matters and I hope that he will take the opportunity to do so this week.”
Cameron questioned whether the Government should have required more transparency from banks using new financial vehicles to finance their borrowing.
He also asked whether the government should request the same capital reserves that are required for on balance sheet lending and said there was a need for greater transparency.
Cameron added: “But as the Financial Services Authority recognises, innovative markets need innovative regulators.”
Liberal Democrat shadow chancellor Vince Cable said: “Obviously the Government has had to take drastic action to calm the panic and to give an absolute guarantee that deposits will be protected, but the Government’s ambiguous commitment raises a host of questions.
“Will the deposit guarantee apply to other banks, and if so which? If it doesn’t what is to stop a run on the Alliance and Leicester and Bradford and Bingley as well? Is the Bank of England in effect proposing to nationalise Northern Rock to underwrite it?
“Once this immediate crisis is stabilised ministers must start focusing on the second wave of debt problems which will occur when the expected slowdown in the British economy produces growing numbers of people unable to service their debts and mortgages. The Government must start discussing with the banks how a wave of arrears and repossessions can be handled in a humane and economically sensible way.”