THE banking watchdog set up by Gordon Brown is condemned by MPs today for failing to stop the run on Northern Rock.

The treasury select committee concludes the Financial Services Authority (FSA) "systematically failed in its duty" to spot the Newcastle-based bank's "reckless" business plan.

Its damning report also attacks dithering by the financial authorities that delayed the rescue plan, which meant pictures of queues of panicking savers were beamed around the world.

And it demands the likes of former Northern Rock chief executive Adam Applegarth - who admitted he was unqualified - are never again allowed to run a major bank.

The MPs also strongly criticise the Government for refusing to tell taxpayers how much of their money is propping up Northern Rock. It is thought to be about £24bn.

The 183-page report says the collapse of Northern Rock, which employs about 5,000 people across the region, was "primarily a failure of its directors", who devised its "high-risk" business strategy.

But its conclusion that the FSA must share the blame is hugely damaging to the Prime Minister who, as Chancellor, set up the "tripartite system" of financial regulation in 1997.

It makes clear the system, sharing responsibility between the FSA, the Bank of England and the Treasury, failed the Northern Rock test, with poor communication and clumsy decision-making.

The only relief for Mr Brown is that Chancellor Alistair Darling is not blamed for the "unacceptable" four-day delay to September's rescue plan that triggered the queues.

Nevertheless, John McFall, the committee's Labour chairman, said: "The failure of Northern Rock, while primarily a failure of its directors, was also a failure of its regulator. The FSA appears to have systematically failed in its duty, and this failure contributed significantly to the difficulties and risks to the public purse that have followed."

Vince Cable, the Liberal Democrat treasury spokesman, said: "Northern Rock's managers behaved like a bunch of cowboys, and the FSA did nothing to rein them in, or even appear to see there was a problem."

Among the committee's key recommendations are a beefed-up role of "deputy governor of the Bank of England and head of financial stability", to spot future banking crises.

It urges new measures to handle banks at risk, to protect taxpayers and small depositors, and ensure any that fail do so "in an orderly manner".

To prevent a future bank run, protected deposits should be paid out within days. However, the MPs reject raising the limit of the guarantee above its current level of £35,000.

The report comes more than four months after the Northern Rock crisis broke, with the revelation that the Bank of England had agreed to provide emergency funding.

It condemns the "reckless" reliance on short-term funding, which followed a switch to an "originate to distribute" model of no longer holding loans to maturity, but instead selling them on to investors.

As a result, the proportion of deposits Northern Rock held fell from 63 per cent of liabilities in 1997, to only 22 per cent in late-2006, making it uniquely vulnerable to the summer credit crunch.

But this looming disaster was not spotted.

Turning to the dramatic events of the autumn, the report criticises the decision of the tripartite authorities to try to delay the announcement of the rescue until Monday, September 17.

They should have "strained every sinew to finalise the support operation and announce it within hours, rather than days, of the decision to proceed".

That decision was made on September 10.

In the event, a leak brought forward the announcement to Friday, but the run on the bank started the night before - on Thursday, September 13.

The queues that made worldwide headlines quickly formed, because many Northern Rock branches had only two counters, and large withdrawals took up to 15 minutes to complete.

The crisis forced the Chancellor to announce that deposits would be protected, but the announcement did not come until 5pm on Monday, September 17.

Mr Darling has already promised to study the committee's conclusions closely, before finalising his proposals to prevent a repeat of the Northern Rock crisis.