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Banks blamed for financial crisis

Financial regulators have been criticised in a new report on the financial crisis, which caused a credit crunch and turbulence on the global money markets.

The Financial Services Authority (FSA) and the Bank of England - the bodies responsible for policing British banks - were investigated for six months by MPs on the Treasury Select Committee.

Exposure to bad loans in the US mortgage market - which caused the crisis last summer - has already seen one UK bank, Northern Rock, almost collapse.

According to the report, the 'early warning' methods used by the FSA and the Bank of England in the event of such exposure were not good enough - and made the crisis much worse in the UK.

Consumers are still feeling the effects of the credit crunch, which has seen home loans become more difficult to secure on the high street.

The committee's report states: "The framework by which the public authorities [ie, the FSA and the Bank of England] issue warnings of potential problems in financial markets is deficient."

In future, the report added, banks should be obliged to discuss the risks of the markets in the boardroom - and that regulators should also increase the frequency of their warnings to banks regarding risk.

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