The UK government was forced to rule out letting failed bank Northern Rock wind down because poor IT systems would have left depositors waiting for their money, risking another major run.
The revelation comes in a report by the National Audit Office (NAO) on the government's handling of the failed bank, which was nationalised in February 2008.
The report says that in September 2007 the Treasury considered stopping Northern Rock from taking deposits and writing new mortgages and beginning a process of winding down the company.
However "inadequate IT systems at Northern Rock meant that depositors would have had to wait for their money".
The firm operated a manual account closure process and estimated that it would have taken up to 10 to 12 weeks to repay depositors, with a likely error rate of 25%.
This would have risked another major run and potential hardship for those reliant on access to their funds, says the report, forcing the government to rule out an immediate wind-down on "practical grounds".
The report says work on updating the technology was then begun to enable quicker repayment of depositors if needed at a later stage.
Tuesday, 24 March 2009
Northern Rock saved from winding down due to "Inadequate IT"
Via Finextra (login required).
Does the term "not fit for purpose" spring to your mind as well as mine? Because they had inadequate systems that suggests to me that Northern Rock should almost certainly have been wound down and the Directors, or at least the CIO, wound up in gaol for gross negligence equal to fraud.
Other companies are not given a reprieve because their incompetent Directors had admin systems and procedures so bad nobody knew who was owed what, so why should this happen for a bank? Why should Taxpayers pay and continue to pay because those running Northern Rock were incompetent? It does not encourage good behaviour elsewhere.
Far from it.
This, on top of the news that we, the Taxpayer, had to pay £80m in Consultancy fees over the Northern Rock problems because of Treasury spinelessness/incompetence/irresponsibility, while the bank continued to churn out "Together" mortgages offering 125pc LTV.
Yes, "together" - Together, Northern Rock and the Taxpayer are drifting up Brown Creek without a moral compass.