Speaking at the Building Societies Association annual lecture, ‘Principles in practice: an antidote to regulatory prescription’, Andrew Hilton, director at the Centre for the Study of Financial Innovation, indicated that the Financial Services Authority (FSA) and the wider market should have seen the warning signs apparent in the lender’s business model.
With the lender facing continued criticism of its lending policy, and following the resignation of its chief executive, Dr Matt Ridley, Hilton suggested that Northern Rock should have been on the regulator’s radar.
Commenting on the lender’s business policy, in the speech, he said: “Northern Rock’s deposits-to-total loans ratio was low by industry standards, even taking account of its securitisation programme; its dependence on wholesale money was accordingly higher than most of its peers; and its lending practices were at the more aggressive end of the spectrum. Hence, and this is, I think, important for you in making the case against an FSA backlash – there were good reasons for the regulator to have kept a special eye on Northern Rock.”
However, the FSA refuted suggestions that it could have halted the lender’s plight, and speaking at the event, an FSA spokesman confirmed it would be making changes, and urged firms to get in touch with the regulator.
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