Editor's letter

Indeed the idols I have loved so long

Have done my credit in men's eye much wrong:

Have drowned my honour in a shallow cup,

And sold my reputation for a song.

It's a safe bet that the 13th century Persian poet Omar Khayyam didn't have Northern Rock in mind when he wrote these words but they could apply to the beleaguered bank's board. We learnt at the end of October that more than £20bn of public money had been devoted to the former building society - essentially to cover the cost of chief executive Adam Applegarth's aggressive plans for growth.

Northern Rock became Britain's fifth largest mortgage lender - and Applegarth expected it to become the third largest in a couple of years - by abandoning a traditional business model and tapping the money markets. When the liquidity crisis hit, deposits from high street customers represented a paltry 25% of its funding. This would be a private affair for the bank's customers and shareholders were it not for the government's massive commitment to support it with public money.

Criticism of EU regulations, or how they've been gold-plated, is reasonable, as is concern about the tripartite system of regulation, but the bank's overreliance on one source of funding, the wholesale market, is at the root of this costly and damaging episode. There were concerns about the former chairman Matt Ridley's business credentials before his resignation, and Applegarth, as he publicly admitted to the Treasury Select Committee, is not a qualified banker. Non-executive director Sir Derek Wanless told the Committee that the bank's stress tests were sufficient, as there was no indication in May that the markets would close in the way they did. But if the aggressive pursuit of growth hadn't led him to forget the merits of diversification, it would matter less to the bank that they have. More heads should roll.

Matthew Attwood, Editor.

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