THIS was the first run on a British bank since City of Glasgow Bank in 1878. In the world’s fourth-biggest economy we saw queues more familiar to Zimbabwe or Germany in the 1920s. It took the authorities four days to bring the situation under control.

Like the Portuguese police investigating the disappearance of Madeleine McCann, we seemed to be faced with several suspects. But now we have got closer to finding out who failed to stop the run on Northern Rock in September.

Directors, regulators, the Bank of England governor and the chancellor – they all trooped in to the Treasury committee. And, funnily enough, they all said it was completely unforeseeable. Not only did each of them fail to predict it: their excuse was that nobody else did either. Who was guilty? They all were.

First, the directors of a bank are responsible for making sure it remains liquid. Banks have risk committees to assess where things might go wrong.

Northern Rock had a risk committee. It also had a risky strategy, borrowing 75% of its mortgage money from the wholesale and securitisation markets. Nobody else was doing this, but Sir Derek Wanless’s committee didn’t bother to ask what might happen if this source of funding dried up. He remains in his post.

Second, there is the regulator, the 3,000-strong Financial Services Authority (FSA). Though its chairman, Sir Callum McCarthy, described Northern Rock’s business model as “extreme”, the FSA only scheduled a full risk assessment every three years. Despite the biggest failure of banking supervision in the FSA’s history, McCarthy remains in his post.

Third, there’s Mervyn King, the Bank of England governor. He knew the wholesale markets had frozen. He watched America’s Federal Reserve and the European Central Bank pump in the necessary funds. He discovered – rather late – that he wasn’t allowed to mount a covert rescue. He wrote us an elegant essay on moral hazard. Then he caved in and lent the money anyway. He is still in his post too.

The final defendant was the chancellor, Alistair Darling. Ten years ago he helped to set up this tripartite system. Let’s look at how it worked. On August 14 everybody – ministers, Bank and FSA – was told Northern Rock might run out of money. By September 14 Northern Rock had run out of money. The system failed.

And Darling was in charge. Instead of getting a grip on the situation in mid-August, he let it drift. He knew liquidity had dried up but he didn’t intervene. He failed to give the governor the legal powers he wanted to mount a preemptive rescue.

This week we learnt that ministers had been warned much earlier that the depositor-protection scheme was inadequate but Darling didn’t do anything about it. In the week before the run he turned down the governor’s advice to offer savers the guarantee that was needed.

Even when the crisis began, he dithered. On the Friday the bank run started, he disappeared to Portugal. By the Monday he was running round saying his job was on the line. More than £20 billion of public money has now been committed to bail out Northern Rock but the chancellor is still clinging to his office.

We need to do better than this. Regulators must do their job: there should be a public inquiry into FSA incompetence. The tripartite system needs rethinking. It is absurd to have banks filing regular liquidity reports to both the Bank of England and the FSA: one body looking at liquidity generally, the other supervising the liquidity of individual institutions.

The Bank of England should be given back supervision of the banks. Loose lending and loose borrowing undermine the effect of increases in interest rates. The Bank should be operating in the open markets to underpin monetary policy, regaining control over short-term rates.

And the chancellor can’t avoid his duty. He is in overall charge. He has failed once: now he should have a proper plan in place to ensure that nothing like this ever happens again.

Michael Fallon is Conservative MP for Sevenoaks and deputy chairman of the Treasury committee.

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