From Robert Peston’s Blog

The Financial Services Report into its supervision of Northern Rock is a catalogue of mistakes, a tragedy of errors rather than a comedy.

The City watchdog admits to inadequate record keeping. Proper notes weren’t taken of important meetings with Rock executives.

There was no rigorous assessment of the serious business risks being run by the Rock, both in the way that the bank was rapidly increasing its mortgage lending and in its financial dependence on selling these mortgages to investors in the form of bonds.

In some ways, it was the riskiest bank in the UK.

But here’s what will shock many.

It was treated by the FSA as though it was the least risky bank in the UK: it received deep assessments of its operations less frequently than most other banks; FSA staff had far fewer meetings with Rock executives than they did with executives at other banks; and unlike what happened at other banks, there was no attempt to force the Rock to reduce the risks it was running.

As the FSA itself says, this was not just a failure of more junior staff. Responsibility for these failings ultimately rests with senior FSA management…

I’ve got a good friend who runs an investment company — and who therefore has had many dealings with the FSA. Long before the Rock fiasco, he told me that the FSA was the most incompetent and arrogant organisation he’d ever dealt with. And yet it had powers of life or death over his business.

And another thing… One of the most disgraceful aspects of the whole story is the way the FSA and its City acolytes tried to frame Mervyn King, the Governor of the Bank of England, for the failure to deal with the errant bank. The whole thing stinks. But I bet nobody in the FSA will fall on his sword.