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Treasury did not think bank crash was priority

The Treasury knew it was ill-prepared for a bank’s collapse as early as 2004 but failed to remedy this before the run on Northern Rock, a report has revealed.

The National Audit Office’s Northern Rock report published last week also shows that Rock sold £1.8bn of high-risk mortgages while getting state aid.

It says Rock continued to sell Together mortgages up to 125 per cent loan to value between September 2007, when it got emergency aid, and February 2008, when it was taken into public ownership.

The report adds: “The Treasury had been aware of potential shortcomings in the arrangements for dealing with a financial institution in difficulty prior to the crisis at Northern Rock. From 2004, the tripartite authorities had undertaken exercises to test their response to a range of scenarios.”

But it says, before 2007, this was not judged to be a priority by the Treasury, which also failed to conduct due diligence on Rock, even though it was aware of weaknesses.

In the report, a Rock spokesman says “The intention in the months at the end of 2007 and beginning of 2008 was to try and issue a private sector sale solution. We maintained an element of mortgage lending, albeit at much lower volumes, but when it became clear that this solution was not going to be achieved and we were moving towards public ownership, Together was withdrawn.”

But Chadney Bulgin mortgage partner Jonathan Clark says: “The fact that a third of Northern Rock’s mortgages fell into negative equity is largely a result of house prices coming down, not as a result of reckless lending.

“They set their stall out to brokers by doing unusual loans, high-income multiples and Together mortgages.

“They could not just sudd-enly stop offering those products overnight because that would have looked like a panic measure.”


Crackdown will raise fees

The FSA says its new intrusive regulation of banks will lead to a hike in its budget and an increase in fees for high impact firms.The review warns the FSA will be engaging in “far more intense” contact with bank management and auditors to properly review banks’ published accounts and accounting judgements.It says the analysis […]

Provocation plea

Advisers should consider moving away from solution selling to dealing with areas of anxiety

Doom’s day

Have you heard? They are remaking the movie Temple of Doom but this time Alastair Darling is being cast in the role of Indiana Jones.Yes, this is the latest insightful contribution from the Treasury select committee. What caused this protestation? The idea of starting the inevitable process of collapsing state-owned banks into each other, in […]

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Pension Wise — now taking calls…

Those with decent-length memories will recall that in the 2014 Budget statement George Osborne announced the new (and entirely unexpected) pension freedoms. The new rules come fully into force in less than two weeks.


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