London Scottish Bank is to quit lending and focus on debt collection following continued scrutiny from the Financial Services Authority (FSA). The Bank has insufficient regulatory capital to the tune of £12.7m but has been working closely with the FSA to devise a plan that will rectify the issue. London Scottish Bank is to focus on debt collection.

A Treasury Select Committee report, not surprisingly, has laid a large portion of the blame with the directors of the troubled bank, concluding ‘The directors of Northern Rock were the principal authors of the difficulties the company has faced since August 2007′ adding that the strategy followed was ‘high risk’ and ‘reckless.’

Its approach of funding mortgages using short and medium term finance from the wholesale markets was unsustainable, particularly so once the credit crunch took hold.

However, other parties are not without blame. Whilst the Treasury has done little wrong and the Bank of England was thought to lack pragmatism, it is the Financial Services Authority (FSA) that has come in for the greatest criticism.

Of the FSA, the report said it had ’systematically failed in its duty as a regulator’ adding it had ‘failed to tackle the fundamental weakness in its funding model and did nothing to prevent the problems that came to the fore.’

The report has recommended that the Bank of England take the lead role in a new unit that will monitor financial stability and have the powers to intervene in failing banks. It is also recommended that it oversees the sale of Northern Rock.