Market takes fright but Turner defends Irish exposure

WORRIES over the eurozone's mounting debt crisis and military tensions on the Korean peninsula wiped nearly 100 points off the FTSE 100 yesterday.

The UK's benchmark index shed more than 1.8 per cent and Wall Street was down sharply when London closed as investors retreated from shares and other riskier assests and instead pumped their money into the dollar.

The Footsie closed down 99.55 points at 5,581.28 as the strong dollar hit the shares of heavyweight mining companies.

The fresh sell-off came as the head of the Financial Services Authority (FSA) denied "failings" over the Irish debt crisis.

Lord Turner told MPs the financial exposure of the UK banking sector was "not out of line with what you'd expect" despite the ongoing share hammering.

Appearing before a Treasury select committee hearing, the FSA chairman was criticised for "regulatory failings" in letting banks have so much cash linked to Ireland.

But, confirming that the watchdog's bank stress tests took into account exposure to the country, Turner argued that part-nationalised banks Royal Bank of Scotland and Lloyds Banking Group had built up their exposure to Ireland not through a "sudden splurge" of loans to Irish banks or through buying sovereign bonds, but due to their presence in the country.

Quizzed on competition in the banking system, Turner said he was "sympathetic" to the idea that big banks such as Lloyds may need to be broken up to allow new entrants into the market.

He said new players were hamstrung by low returns through the UK's "free banking" model and would struggle to set up from scratch without being able to buy existing bank businesses.

FSA chief executive Hector Sants, who also appeared in front of the committee, was grilled on his views on the Bank of England's past mistakes and its new more powerful role in regulation.

He told MPs the central bank had been too "slow in the uptake" in assuming responsibility for financial stability during the financial crisis.

The government is scrapping the FSA and handing greater powers to the BoE to oversee regulation, with a separate body formed to handle consumer protection.

Meanwhile, the head of Ireland's central bank hoisted the "For Sale" sign over the Republic's stricken banks.

"They are for sale as far as I am concerned," said bank chief Patrick Honohan.

"I have been an advocate for a number of years for small countries to have foreign owners for their banks."