Editor's letter

Just before Credit went to press, the FSA's chief executive, Hector Sants, admitted that the Authority has not emerged from the Northern Rock crisis with its reputation enhanced. Anticipating the publication, expected in March, of the FSA's internal review of its conduct during the debacle, he said its supervision of the bank fell short of the expected standards.

Echoing the UK Treasury Select Committee's strident criticism of the FSA, Sants acknowledged that its approach lacked intensity and rigour, especially with regard to its appraisal of Northern Rock's risk management practices and the potential downside inherent in its business model.

Mr Sants could hardly take a different view, but he qualified his comments with the observation that more active supervision - one imagines that by this he meant some kind of direct intervention - would not necessarily have prevented the events of last August and beyond. Risk is inherent in any commercial enterprise, but this somewhat blithe comment invites the question: in that case, what are regulators actually for? If they can't intervene to the benefit of the institutions they oversee and the market as a whole, what is the point of their existence?

The FSA shares culpability for the disaster, of course. The Bank of England was dilatory in its response, and the Chancellor of the Exchequer has succeeded in choosing the worst option (would you want your mortgage lender or your savings bank to be run, ultimately, by civil servants?) at the worst possible time, having racked up a £55 billion exposure to Northern Rock before finally opting for nationalisation. A much better choice would have been to provide cash to keep the bank afloat as a private concern without insisting on early repayment. Maybe it's time to ask who should regulate the regulators.

Matthew Attwood, Editor.