Bank's troubles highlight public distrust of government and regulators as well as financial services
Taking a lunchtime stroll near BIBA’s offices in the City earlier this week you couldn’t fail to notice the queue of people snaking round the block. They weren’t waiting for anything exciting, but to withdraw their savings from the beleaguered bank Northern Rock.
It was a sobering sight. Here was the UK’s fifth largest mortgage lender besieged by worried customers. This was despite reassurances from the Chancellor, the Bank of England, the Financial Services Authority and assorted financial ‘experts’ that deposits were safe and that there was no need to panic.
In an earlier blog I mentioned my concerns about Government making payments to those people affected by the recent flooding who did not have any insurance cover. Now we have Government stepping in to assist a financial institution with an ambitious expansion policy wrong-footed by events in world markets. Where next?
What I also find worrying is that savers don’t appear to be listening. The public’s reaction indicates a deep-rooted distrust not only in the financial services industry, but its regulators and government too.
Earlier this year BIBA met the FSA to discuss their forensic review of commission disclosure. We asked the FSA why it was spending so much time and effort investigating an area that was not an issue with consumers when practices in other areas such as the mortgage market might be more appropriate for them to focus their efforts on.
The FSA’s own financial risk outlook published back in January highlighted the potential for increasing personal indebtedness, deteriorating credit quality and a reduction in the supply of and an increase in the cost of liquidity. Given this intelligence, you have to ask when did Northern Rock’s woes first become apparent and more importantly couldn’t the tripartite authorities have done something sooner to avoid this damaging blow to consumer confidence and the financial services industry’s reputation?
The proposals to introduce cross subsidy in the Financial Services Compensation Scheme mean that all firms have an interest in the answer.
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