Much has been written recently about the financial crisis, which had one of its several starting points 10 years ago last week. That was when the wholesale markets effectively shut down, starting the chain of events that led to the collapse of Northern Rock in September 2007.
Many of the articles have been thoughtful, but reading them has demonstrated to me that it's still too soon to write the history of such a complex and still contested set of events. However, that doesn't at all mean we shouldn't continue trying to decipher what happened and why, and what we can learn from it.
So I think it's worth flagging this quote, reporting on the FSA's Internal Audit Report on Northern Rock, published in March 2008. It's a coruscating criticism of how the bank was supervised, was widely praised at the time but is now largely forgotten. Here are four lessons to ponder from it that may serve as useful balance to present trends:
1. Consistency has something going for it: We are now in an age of regulatory "judgement" as opposed to "tick box", so it's salutary to note that part of the Northern Rock story is the unwise use of discretion to defer supervisory actions because the firm was judged low risk.
2. Restructuring has a cost: Another part of the story is that regular restructuring of the FSA led to higher turnover and a lack of continuity, and distracted senior management from some of its core Supervision responsibilities.
3. Prioritisation has a downside: Northern Rock's problem was, at the outset, a liquidity problem. However, regulators had been prioritising capital requirements and, as a result, liquidity regulation hadn't kept pace with developments such as Internet banking.
4. Not all innovation and competition is good: It seems odd now but Northern Rock's "innovative" business model was once widely seen as a success story, a genuine challenge to the more established mortgage providers.
As I said, it still seems too soon to write the history of The financial crisis. But this makes it doubly important not to lose any breadth in our thinking about events such as Northern Rock, and to avoid the temptation of defaulting to the prevailing wisdom of our own times.
An internal audit into the regulation of Northern Rock identified a series of failings which threaten to badly undermine the reputation of the Financial Services Authority.