With reports suggesting that Northern Rock had seen borrowers withdraw money at a rate of £10,000 a second, with two billion pounds withdrawn over the weekend, the FSA said procedures had to improve.
Hector Sants, chief executive at the FSA, admitted that the current strategy was in need of change. He said: “Clearly it is the case that the existing industry backed scheme does have limitations, particularly with regard to large deposits, and it does seem reasonable to conclude that that may well have been a contributing factor to the loss of confidence seen with Northern Rock depositors,” FSA chief executive, Hector Sants, told BBC Radio Four.
“There have been a number of factors affecting confidence, but it is clear that investors are aware of the limitations of the scheme and, in the light of events, it would be right to look at it again.”
However, Callum McCarthy, chairman at the FSA, added: “The FSA remains confident about the industry’s ability to withstand current market pressures. We are in constant dialogue with firms to ensure that they are vigilant with regard to potential risks.”
The Bank of England also made a u-turn, with its decision to inject £10 billion into the market to ease the pressure on inter-bank interest rates. Alan Clarke at BNP Paribas, said: “The situation has deteriorated to the point that the slowdown implied is more severe than the Bank had seen as desirable.”
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