Northern Rock chiefs defend actions

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Chief executive Adam Applegarth and chairman Dr Matt Ridley told MPs at a hard-hitting Treasury Select Committee hearing that they were victims of an "unforeseen" meltdown in credit markets.

Exasperated MPs on the cross-party committee accused the bank's board of failing to heed early warning signs and tarnishing the UK banking sector's reputation.

In a scathing attack on Dr Ridley and his role in the crisis, Tory MP Michael Fallon said: "You are the chairman of the bank that ran out of money, that caused the first bank run in this country for 150 years. You have had to borrow billions of public money from the Bank of England and have damaged the good name of British banking. Why are you still clinging to office?"

The grilling into what went wrong at the Newcastle-based mortgage lender came a month after Northern Rock was forced to turn to the Bank of England as lender of last resort.

It was also the first time the Northern Rock management had faced a public quizzing since the bank was engulfed in the funding crisis. The subsequent run on the bank, which led to an estimated £2 billion being withdrawn by panicked savers, was only eased after the Government stepped in to guarantee deposits held by the group.

MPs rounded on the bank's chief executive and chairman over their reliance on money markets, which the lender uses for around 75% of its funding.

Money markets have virtually dried up over the past two months, sparked by soaring default rates on high-risk mortgages in the US.

Northern Rock also came under fire for what MPs claimed were aggressive lending tactics.

Mr Applegarth said the bank had already moved to diversify its funding lines, offload higher risk loans held on its books and adopt a slower growth lending model. "We failed to foresee the global close down in markets but I don't know anyone who foresaw the freeze," he added.