Blaming Europe for Northern Rock a bit rich - Houseley

2.20.00pm BST (GMT +0100) Fri 21st Sep 2007

Andrew Houseley has hit back at claims that the Northern Rock Bank crisis was made worse by European legislation. He has also called for the Bank of England's vital independence to be restored and its regulatory framework to be updated.

As Bank of England Governor Mervyn King was being savaged by the Commons Treasury Select Committee for not acting sooner, Mr King made this extraordinary testimony: "The interaction between different pieces of unconnected legislation made it almost impossible for us to act as a lender of last resort in the way that I would prefer.

"In the 1990s, the Bank of England might have dealt with the situation by acting covertly as lender of last resort, without publishing it until after the process had finished. That would have been my preferred course, to avoid creating concerns among depositors."

Mr King was referring to the Market Abuses Directive, claiming that the Bank of England and Northern Rock's directors would have had to make any loan public.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/09/20/bcnking520.xml

However, hours after the Select Committee, the European Commission stated:

"There is no obligation for central banks to disclose its activity under the market abuse directive."

http://news.bbc.co.uk/1/hi/business/7004001.stm

Andrew Houseley commented: "This is a shocking example of how British governments and officials blame European legislation when things go wrong. Unfortunately there are many more examples. This directive is there to protect and stabilise financial markets, not hand-tie their regulators. It should have been incorporated into the Bank of England's framework - drawn up in 1997 when the Labour government implemented a long-standing Liberal Democrat policy granting the Bank independence from political control - but instead it has remained stuck outside it. For that the government must carry the can.

"It does show how our officials and non government bodies get paralysed with fear of Europe - after 34 years of membership of the EEC and EU they still don't get it. The government must show leadership and commitment and not allow helpful European regulations to remain outside its various frameworks.

"As for the Bank of England, the government needs to restore confidence in its independence and ensure it and the Bank are clear about what it can and cannot do."