A few months ago the FSA was riding high, notes the FT’s Gillian Tett in her Friday column. But pointed out one official to her, public opinion can be fickle. “The praise makes me a bit nervous,” he concluded, ruefully.
It was a prescient comment. As the turmoil around Northern Rock has exploded in recent days, the main scapegoat so far has been the Bank of England, and its bespectacled governor, Mervyn King.
Mr King was on Thursday fed to the lions, in policy-making terms, says Tett. But FSA officials will have their moment in front of the Treasury Committee in two weeks’ time. By then, she notes, the focus of criticism may have turned:
The recent events at Northern Rock smack of an embarrassing failure of banking supervision. And these days — or at least, since the UK reformed its regulatory regime a decade ago, it is the FSA, not the Bank, which is the main banking supervisor.
Thus it is the FSA which has had responsibility for assessing whether Northern Rock’s business model was safe. It is also the FSA that is supposed to know whether individual banks might face a liquidity squeeze.
It would also seem reasonably to expect the FSA to reassure the public during a time of crisis. Among the regulator’s statutory objectives are that of public awareness – “promoting public understanding of the financial system” – and of market confidence – “maintaining confidence in the financial system.”
In Tett’s view, the FSA hasn’t fulfilled any of its roles terribly well this summer. “It has not had sufficient authroity to bang City head together effectively.”
Events have left the FSA looking like an institution which is either unable to spot looming problems — or unable to muster the clout to act when it smells danger. Neither of these images is reassuring right now.