I've just read the FSA's audit report on its own failings over the Crock. Actually, it's not even the whole report, just a summary: the full version won't be published until it's had "redactions to protect commercial and individual confidentiality". But the summary's more than enough to make us scream:
- Total failure to recognise risk: unbelievably, the Crock was deemed so low risk it was subject to much less monitoring than other High Street banks. Indeed, the FSA was so relaxed it hardly bothered to monitor it at all: through the whole of 2005 and 2006 they only had one meeting with Crock management, compared to an average of 100 - yes 100 - with the top five banks.
- Total lack of financial analysis: under the FSA's internal procedures "there was no requirement on supervisory teams to include any developed financial analysis in the material provided to [decison makers], and for the Northern Rock Panel none was provided either for the firm itself or in relation to its peers" (para 15). Can you imagine that- the FINANCIAL Services Authority did not think it necessary to do any FINANCIAL analysis of a bank that was growing faster than any of its peers.
- Rubbish record keeping- "contrary to... standard practice, formal records of key meetings were not prepared" (para 13) "None of the issues was recorded in... the FSA’s database from which internal management information is generated and which triggers escalation of concerns... No change in the firm’s risk scores was recorded" (para 22).
- Massive management failure- "Our findings also show a level of engagement and oversight by supervisory line management below the standard we would expect." (para 24)
- Wholesale staff inadequacy- "the FSA is short of expertise in some fundamental areas, notably prudential banking experience and financial data analysis": translation- anyone who's got the skills required leaves.
This is a shocking report. And frankly, we can have no confidence in the ability of the FSA to put it right.
We'd move banking supervision back to the Bank of England soonest.