Via Felix Salmon, Richard Murphy explores the convoluted structure of one of Northern Rock's funding vehicles...

It does seem clear that in this case a relatively normal bank with a relatively normal set of funding vehicles turned out, on close examination, to be fiendishly complex and opaque; it would be naive to assume that any other financial institution was very different. There is a regulatory lesson here... it's hopeless to expect regulators to stay on top of the complexity which is endemic to the global financial system... Basel II is likely to turn into a license for unscrupulous banks to structure their way into difficulties which might have very nasty systemic consequences indeed.

The regulators in question were in front of the House of Commons' Treasury Select Committee yesterday. Video here (if you have the time to spare; FT account if you don't). Interesting points - the FSA appears to have spent more time wargaming individual institutional failures than a general collapse of liquidity - which I suppose makes sense, given its institutional objectives. But shouldn't someone have the job of macroeconomic stability management? This seems to be another issue that has got stuck in the Bank/FSA gap...