The FSA - Where it all Went Wrong

This Blog will firstly establish the major failings of FSA in the most recent financial crisis. The best way to tackle the failure of the FSA is to look at arguably the two biggest failures in the British banking system and they are RBS and Northern Rock.

Beginning firstly with Northern Rock, the FSA failed on numerous grounds to pick up on this institution failing banking model. The first ground as highlighted by the government report “Run on the Rock” was the ARROW assessment used to evaluate levels of risk was not due for another three years gap between January 2006 and January 2009. Mr. Sants (head of the FSA) even said himself the proposed interval between assessment was” inadequate”. Another failing of the FSA was that they failed to pick up on two very important signs, first the rapid growth of Northern Rock and to use the old cliché if something is too good to be true it usually is. The next important signal was the falling share price as Professor Buiter “There is some information surely in the fact that Northern Rock’s share price had been in steep decline since February of this year, well before the financial market turmoil hit”. The share price of Northern Rock can be seen below (yahoo finance):

To put it as simple as Professor Wood (commentator on the financial crisis) did, The FSA feel asleep on the job as it failed to carry out correct stress testing procedures, liquidity checks and pick on the fact that the northern rock was a failed business model.

Now to talk about RBS, the best way to describe this is by watching this video:

This video discusses the report into why RBS failed and according to the report it failed for three main reasons "poor management, inadequate regulation and a flawed supervisory system". Also in this video Lord Adair Turner (chairman of FSA) describies how the FSA failed to regulate RBS. One case in particular that many critics pick up on was their merger with ABN AMRO, which everyone in the market knew it was going to be a complete disaster but the FSA failed to act. So with all these failings in mind there is a change on the horizon.