In an interview with the BBC, Sants said he recommended that Lloyds TSB be granted a loan from the Bank of England (BoE) to facilitate a takeover of the troubled British bank, which had been hit by the sub-prime crisis.
But he claims BoE governor, Sir Mervyn King, said the central bank would not provide the money, while Alastair Darling, the Chancellor at the time, was silent on the issue.
Northern Rock was nationalised in 2008 following its near collapse. In the first run on a British bank in more than a century, depositors queued outside branches to withdraw their savings.
“I think things would have been very different if the government and the Bank [of England] had taken my recommendation that they should provide liquidity support to Lloyds to purchase Northern Rock,” Mr Sants told BBC business editor Robert Peston.
“I think that would have made a difference, it would have avoided the queues and it would have changed the general climate in relation to the old building society sector that had moved into the banking sector.”
Sants is stepping down from the FSA at the end of June, after five years as chief executive.
