FSA: Withdrawing money would be ‘entirely irrational’

Tuesday, 18, Sep 2007 12:00

The chairman of the Financial Services Authority (FSA) today insisted the decision made by the Bank of England (BoE) and the government to bail out Northern Rock was "entirely justified".

Callum McCarthy's comments on BBC Radio 4's Today programme follow the government’s pledge to guarantee all deposits held with the troubled bank.

Critics have argued the government should not bail an irresponsible company out of trouble.

But Sir Callum contested this view, saying: "To some extent there is a deliberate decision to make sure that a particular institution does not go into severe difficulty, though I would stress that it remains solvent all the time.

"The purpose of doing this is not to save Northern Rock per se, it is to make sure that there is not a general effect on the banking system overall.

"That was the purpose of it and that was I think entirely justified."

Following the BoE’s dramatic intervention, McCarthy insisted it would be "completely irrational" of customers to doubt the security of their deposits.

He maintained that Northern Rock was solvent with a good mortgage book.