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Was Northern Rock the straw which broke the camel's back?

Yesterday's revelation that key executives at Northern Rock allegedly failed to disclose details of around 2,000 mortgage accounts which were in arrears, in hindsight, may have been the start of a difficult period for the UK banking sector. Even though it is unlikely that the credit crunch and following recession could have been avoided there is some concern that the nature of the UK banking crisis may have been somewhat different if early warning signals had appeared.

Even though the Financial Services Authority (FSA) has handed out a record fine to former Northern Rock deputy chief executive David Baker there is concern there may be other similar issues at other financial institutions in the UK. Slowly but surely an ongoing investigation by the FSA is unearthing examples of potential mismanagement and disclosure issues which could have alerted the UK authorities to more deep-seated problems at an earlier stage.

It will be interesting to see what other revelations emerge in the weeks and months ahead as the authorities and the regulators look to ensure the chances of a repeat of the banking crisis in the future are minimal. While no regulatory system is foolproof and we could yet see future problems of a similar nature in the banking sector, if the regulatory framework is tightened we would see earlier warnings of potential problems and better management of risk.

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