In a recent issue of Private Eye, it was claimed that similar problems in Germany and the US had been averted, with banks being bailed out early enough to prevent a run on branches.
It claimed: “Two little known German banks were bailed out: IKB and Sachsen LB. These operations involved other German banks acting in liaison with an embarrassed Bundesbank and the banking investigator BaFin, who share responsibility for the sector.”
In the US, the Fed acted to avoid a similar crisis, and is reportedly acting to prevent any further economic damage from the non-conforming crisis with the $75 billion mortgage securities superfund backed by Citigroup, JP Morgan Chase and Bank of America. Its intention was to buy up unsaleable assets held by them and other banks to free up capital and prevent further collapses.
Private Eye questioned whether ‘British banks should be creating a similar fund to limit the collateral non-conforming damage from not just the US, but UK mortgages.’
It was also critical of the FSA approving of Northern Rock’s high risk model, which allowed the lender to reduce the amount of capital it was required to hold in its reserves. It also claimed that ‘FSA insiders say the supervision of the lender was typical of how the regulator now works.’
Evan Owen, director of the IFA Defence Union, said: “If the regulators had an ounce of sense, they’d have had more than three people supervising Northern Rock and they should certainly have visited it more often.”
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