The Financial Services Authority (FSA) will admit tomorrow that it made mistakes in its supervisory role of Northern Rock, the UK mortgage lender that collapsed and was nationalised earlier this year.

In a highly anticipated report of its handling of the Rock crisis, the City watchdog is expected to outline exactly what went wrong and how it failed to recognise that the bank was on the brink of collapse before it was too late.

The FSA, along with the Bank of England and the Treasury, has been widely criticised for its handling of the Rock debacle and its failure to act quickly enough to fend off what became one of the most high-profile and embarrassing crises in UK banking history.

The FSA has admitted that it did not undertake an in-depth assessment of Northern Rock for 18 months before it ran into trouble.

In the report, the FSA is expected to concede that its dogged focus on protecting consumers may have come at the expense of its duties overseeing the viability of banks' business models.

It will outline how it might improve its supervisory role to deal more effectively with a crisis in the future.

Northern Rock collapsed last year after the wholesale funding market — on which it was reliant for more than 75 per cent of its funding — dried up in the wake of the sub-prime mortgage crisis in America.

Although the Treasury stepped in to guarantee depositors' cash, the move was too late and the crisis led to the first run on a British bank for 140 years.

Alistair Darling, the Chancellor, has said that the Treasury plans to give the FSA more power to step in earlier and seize a bank's deposits if things go wrong, but many observers suggest that the powers will do little to help if the FSA cannot spot the problems in the first place.

Last week the FSA ousted Clive Briaust, its retail chief, the only high-profile head to roll over the Northern Rock debacle.

It said that Mr Briault would leave the regulator "by mutual consent" at the end of next month.

Mr Briault headed the team that monitored Northern Rock.

No other senior regulator or politician has lost office because of the affair.

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