Speaking to the Treasury Select Committee, chairman Sir Callum McCarthy and chief executive Hector Sants believed that the regulator had not fully anticipated the implications of a global credit crunch on UK lenders and that it should have had more robust systems in place and more extreme stress testing.
Sants said: "There are lessons to be learnt here with regard to our supervision processes. In terms of getting into difficulties, we had (Northern Rock) as low probability, and that now seems to be incorrect. I don't think any reasoned professional would have anticipated these circumstances, but as a regulator we should have engaged in extreme stress tests."
The regulator also admitted it should have questioned Northern Rock’s business model and the level of its reliance on the credit market, especially after the rapid expansion of its loan book in the first half of 2007.
MPs questioned why the regulator had not brought forward its inspection of the bank and called for the three-yearly health check for lenders to be shortened.
However, Linda Will, managing director of Accord Mortgages, believed the regulator had come in for undue criticism.
“Northern Rock was going at a high level for some time but there were other securitising lenders doing high volumes too. It makes good sensationalism but what difference would it have made if the FSA had walked in six months ago and said it had concerns? The Rock has always had a small branch network and struggled to get retail funding but how could it have justified going into the Rock and saying it can’t have a model based on that level of securitisation without doing the same to the likes of GMAC-RFC and edeus.”
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