The Treasury Select Committee (TSC) report, Financial Stability and Transparency, claimed that lenders were caught up in a chase for profit in a low interest rate environment, which led them to take unnecessary risks.
However, the report insisted that while lenders ignored the warnings from the Financial Services Authority (FSA) and the Bank of England, these bodies failed to do enough to enforce their warnings to head off the crisis.
Committee chairman John McFall said: "It is clear that many market participants failed to heed warnings about a serious under-pricing of risk and the potential for impaired liquidity in financial markets, in the mistaken belief that the good times would go on and on.
“The Bank and FSA can no longer hedge their bets, throwing potential risks out into the ether and then washing their hands of the consequences. We must ensure that in the future such warnings are heeded and acted upon by those at the top of financial institutions.”
The TSC attributed much of the blame for the credit crisis on lenders failing to consider adequately the risks of the products they were dealing with.
It claimed investors ‘threw caution to the wind’ when taking decisions over investment opportunities, such as non-conforming mortgage-backed securities, which they had been ‘seduced’ into with promises of high returns.
It also condemned the behaviour of rating agencies, which helped fuel the crisis. The report demanded a ‘root and branch’ review of their business models to remove the concerns over conflicts of interest – which saw the lenders pay for the agencies to rate their products.
The report is part of a wider investigation currently being undertaken by the Treasury into the ongoing liquidity crisis.
