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Wednesday, 26 March 2008

From the FSA review of its own behaviour on Northern Rock

Summary for the proles here.

Para 31 id interesting: "Our understanding is that, during the review period, the FSA’s approach to liquidity reflected a presumption that, in the event of a crisis like that experienced in August 2007, general market liquidity provided by the Bank of England would be increased and, in extremis, liquidity would be provided for systemically important institutions."

It seems that the FSA assumed that liquidity risk was not a risk because the Bank of England would step in and provide liquidity. It was a shame that nobody told the Bank of England. perhaps the Prime Minister should have told them when he split the responsiblity for bank supervision. Then again, perhaps the FSA should have asked the Bank of England what they would do, before they made any assumptions.

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