Darling hits back on Northern Rock

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The Chancellor admitted that changes were needed to prevent similar problems happening in future, but insisted the regulatory system introduced by the Labour Government was not fundamentally flawed.

The issues at the bank had been "quite exceptional" and he had done the "right thing" by stepping in to protect savers, according to Mr Darling.

Writing in the News of the World, the Chancellor said he would set out proposals next week for bolstering the powers of the Bank of England and the Financial Services Authority (FSA).

"These changes will mean that we can spot risks earlier and try to prevent problems like Northern Rock happening in the future."

A report by the Treasury Select Committee criticised both Mr Darling and the FSA for failures in relation to Northern Rock.

The regulator committed a "systematic failure of duty" by not spotting the bank's "reckless" business plan.

A delay in an announcement from Chancellor Alistair Darling guaranteeing customer deposits also "prolonged" the run on the bank by panicked customers last September, and meant more damage was "caused to the health of the company than might otherwise have been the case".