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Saturday, May 30, 2009

U.K.: FSA Aware of Northern Rock Risks in 2004

by Calculated Risk on 5/30/2009 12:58:00 PM

From the Financial Times: War game saw run on Rock

Banking regulators identified Northern Rock as the weak link in Britain's banking system during secret "war games" held as long ago as 2004, the Financial Times has learned.

The risk simulation planning, conducted by the Financial Services Authority, the Bank of England and the Treasury, made clear the systemic risks posed by Northern Rock's business model, and its domino effect on HBOS, then the UK's largest mortgage lender.

The revelation is at odds with government officials' insistence that no one could have foreseen the September 2007 collapse of Northern Rock or the subsequent rescue of HBOS, which was sold to Lloyds Bank.

Even though the exercise revealed the banks' vulnerability, the regulators concluded they could not force the lenders to change their practices, according to several people familiar with the matter.
File under "hoocoodanode?"