Poor IT forced government hand in Northern Rock takeover

Saved by poor IT?

Inadequate computer systems forced the Treasury to rule out winding down Northern Rock, the building society taken over after a run on its funds, according to a National Audit Office (NAO) report.

The state of the computer system meant depositors would have had to wait for their money, risking another major run, the fear that contagion would spread to other financial institutions and potential hardship for those reliant on access to their funds.

The current system required the manual closure of accounts, which would have taken 10 to 12 weeks, with error rates up to 25 per cent, the NAO said.

The Bank of England, accountants Ernst & Young and Northern Rock management had to update the IT systems to enable quicker repayment of depositors if needed at a later date.

The NAO report criticised the Treasury for lacking procedures for taking over a major institution but accepted nationalisation offered the best prospect of protecting taxpayers' interests.