The Treasury should not have allowed Northern Rock to continue with its risky mortgage lending after the bank was nationalised, the National Audit Office has said.
Northern Rock continued to offer mortgages of up to 125 percent after it was nationalised by the government, it has emerged, leading to criticism for the Treasury.
According to the National Audit Office (NAO), which investigates all central government accounts, the bank continued with its risky business practices even after it had been bailed out. However, the NAO did agree that the nationalisation, which took place early last year, was the best option for taxpayers' interests.
"The Treasury successfully met its objective to protect Northern Rock's depositors and stopped the run on the bank," said NAO head Tim Burr. "It rightly concluded that the private sector bids for the bank gave insufficient prospect of safeguarding the taxpayer's interest."
Northern Rock set a precedent that later saw the nationalisation of Bradford & Bingley, while both RBS and the Lloyds Banking Group are now majority-owned by the government. But the NAO said that mistakes made after the Rock takeover, including allowing it to continue offering the mortgages that many blamed for its collapse in the first place, should be learned from.
"The Treasury could however have conducted a more systematic assessment of the risks it was taking on and more thoroughly tested the bank's initial business plan in public ownership," Mr Burr concluded.
