Page last updated at 17:25 GMT, Wednesday, 20 May 2009 18:25 UK

Dunfermline 'warned over risks'

A branch of the Dunfermline
MPs were told selling Dunfermline was the only option

MPs looking at the collapse of the Dunfermline Building Society have been told it was warned over a period of four years that it was taking risks.

The Scottish Affairs Committee was taking evidence from the Financial Services Authority, the Bank of England and the Treasury, at Westminster.

The FSA said the Dunfermline was warned when it moved into commercial property lending and self-certified mortgages.

Most of the mutual was eventually sold to the Nationwide Building Society.

The Nationwide took on the society's branches and head office as well as most of its mortgage book.

The Treasury said it would take on about £1.5bn of commercial property lending and acquired mortgage debt under the deal.

The Bank of England used new powers under the Banking Act to rush through the deal and prevent the Dunfermline - Scotland's largest building society - from going bust.

MPs questions

Members of the Scottish Affairs Committee questioned whether there had been any other option for the society.

SNP MP for Perth and North Perthshire Pete Wishart asked why a government bail-out was not considered.

He said: "It's been reported that all the Dunfermline needed was a £60m to a £100m loan to continue to thrive. Was that properly considered?"

A spokesman for the Treasury said although a cash injection would have helped the society survive in the short-term, there were questions over its long-term viability.

FSA questioned

The Financial Services Authority representative was questioned by the Liberal Democrat MP for Orkney and Shetland, Alistair Carmichael, about whether it had done enough to prevent the collapse of the society.

He asked: "Do you not think there was more you could have done to highlight what was coming down the tracks?"

The FSA spokesman said expectation of the role of the authority had changed over recent years.

This is the first of two sessions being held to find out what happened to the Dunfermline with the second session in June due to hear from the society's management.

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