THE head of the UK's leading business organisation last night launched a stinging attack on the financial authorities for failing to prevent Northern Rock's spectacular slump.

CBI director general Richard Lambert said the recent run on the bank, which saw savers withdraw £2.5bn, was what would be expected in a "banana republic".

Last night, in a hard-hitting speech to businessmen and women at the CBI's North-East annual dinner, in Newcastle, the home of Northern Rock, Mr Lambert said: "For this to have happened in a mature and prosperous country like the UK is almost unimaginable."

He said the recent crisis, which began when Northern Rock was forced to apply to the Bank of England for emergency funding, showed that a three-way banking regulation system designed to underwrite financial stability had "been found wanting under fire".

The strong underlying economy had made events even more disturbing, although the board of the bank had to take "full responsibility for its business model", which saw it rely heavily on financial support from foreign money markets.

Mr Lambert said: "This was the first big test of the so-called tripartite arrangement, created when the Bank of England was given its independence ten years ago, and designed to be the bedrock on which to build stability across our financial system.

"The deal then was that the Financial Services Authority would supervise individual banks, the Bank would deal with systemic crises and sign the cheques, and the Treasury would - when necessary - provide public funding to keep sound institutions in business.

"For whatever reason, this tripartite system has failed to deliver the goods.

"Perhaps there are just too many conflicts inherent in a system where three different institutions, with three different policy priorities, have to come together to tackle a fast-moving crisis." Continued on Page 5