Northern Rock run could have been avoided, says FSA chief

Hector Sants said the personal responsibilities of the Bank of England governor will become excessive.

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The run on Northern Rock could have been prevented, the outgoing chief executive of the Financial Services Authority (FSA) has told the BBC.

Hector Sants said that he recommended that Lloyds TSB be granted a loan from the Bank of England to facilitate a takeover of Northern Rock.

If the central bank and the government had allowed the loan, the crisis at the bank could have been avoided, he said.

Northern Rock was nationalised in 2008 following its near collapse.

"I think things would have been very different if the government and the Bank [of England] had taken my recommendation that they should provide liquidity support to Lloyds to purchase Northern Rock," Mr Sants told BBC business editor Robert Peston.

"I think that would have made a difference, it would have avoided the queues and it would have changed the general climate in relation to the old building society sector that had moved into the banking sector."

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Sants recommended that Lloyds should be given the guarantee it wanted... But Sir Mervyn King said the Bank of England would not provide the money. And, I am told, the chancellor said nothing. The rest is inglorious British banking history”

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But he said the Bank of England governor, Sir Mervyn King, said the central bank would not provide the money, while Alastair Darling, the Chancellor at the time, said nothing.

Mr Sants also said he believes the personal responsibilities of whoever succeeds Sir Mervyn as governor of the Bank of England in 2013 will become excessive when the Bank acquires formal responsibility to regulate and supervise banks and big financial institutions next year.

He added that if the eurozone goes for a banking union, as has been proposed by the European Commission, the current system whereby regulations for UK banks are set by the EU will become "unworkable" for the UK.

Mr Sants is stepping down from the FSA at the end of June, after five years as chief executive.

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