Darling defends actions over Rock

An MPs' report criticised Mr Darling's delay in guaranteeing deposits

Chancellor Alistair Darling has defended his handling of the Northern Rock crisis, after a critical Treasury select committee report from MPs.

Writing in the News of the World, Mr Darling insisted he had done the "right thing" to protect savers' investments.

He also promised to set out plans to strengthen the Bank of England and the Financial Services Authority (FSA).

But shadow chancellor George Osborne told the BBC the affair had damaged the UK's reputation as a financial centre.

Speaking on BBC One's Andrew Marr Show he said the Rock's troubles had hit the UK's name as a "good place to do business".

'Quite exceptional'

The Newcastle-based lender got itself into financial difficulties amid the global credit crunch caused by the sub-prime lending crisis in the US.

Last week, Mr Darling proposed turning the firm's £25bn loan from the Bank of England into bonds and selling them to investors.

Having taken the decision to support Northern Rock, I am determined to see it through Alistair Darling Chancellor of the Exchequer

But if a private sale is not reached, the bank will come under temporary public ownership, he has warned.

In his newspaper article, Mr Darling admitted that reforms were needed to prevent a repeat of the crisis.

But he argued that the sequence of events surrounding the bank were "quite exceptional" and insisted the regulation system introduced by Labour was fundamentally sound.

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"The chairman of the FSA has been quite clear in saying that there are many things that should have been done far better," he wrote.

"We need to tighten up the system and fill in any gaps, but the reforms I announce need to build on the reforms made 10 years ago, not reverse them."

Mr Darling said the government had to step in to support Northern Rock to stop its problems spreading to other banks and to protect people's savings.

"This was the right thing to do. And having taken the decision to support Northern Rock, I am determined to see it through."

'Managed administration'

Speaking on Sunday, Mr Osborne criticised the FSA for failing to monitor the liquidity situation at Northern Rock.

And, outlining how the Conservatives would deal with the Rock crisis, he said he wanted a diminished role for the FSA.

Mr Osborne says Northern Rock depositors are of prime importance

Mr Osborne said he wanted "a reconstruction led by the Bank of England, a form of administration but not an administration that leads to a fire sale, rather one managed by the Bank of England where they can protect the depositors".

He said looking after depositors was the main priority, and "then we can deal with the rest of the bank".

And he said that Mr Darling's plan to turn the Rock's loans into bonds meant "a second mortgage being taken out for every citizen in Britain".

The shadow chancellor also denied that his proposal would mean branches closing or jobs being lost, saying the Bank of England would be tasked with taking the Rock "forward" as a going concern if it could.

Delay criticised

On Saturday a Treasury select committee report said Mr Darling's actions had "prolonged" the autumn run on the bank.

It also concluded the FSA was guilty of a "systematic failure of duty" over the Northern Rock crisis and had failed to spot the bank's "reckless" business plan.

Mr Osborne said the report highlighted Mr Darling's "damaging dithering" and "economic incompetence".

The FSA has already admitted failings in relation to Northern Rock and said it was "addressing" them.

The Treasury Committee report said that a delay by Mr Darling in guaranteeing Rock customers' deposits had meant more damage was "caused to the health of the company than might otherwise have been the case".

The FSA said it would be publishing the conclusions of its own review in March.