Northern Rock's plans could be further damaged by rival lenders leaving the market. "It becomes more challenging if there are no other lenders out there," Mr Sandler said, adding that the proposal to halve the mortgage book to £50bn and secure 50pc of its funding from retail deposits requires a mortgage redemption rate of 60pc, compared with the bank's historic rate of 40pc.
Mr Sandler added: "There is a risk of adverse selection. Those customers who represent a better credit risk will get mortgages elsewhere. We do expect it will increase the riskiness of our book." He accepted that the bank may have to create a special category of mortgage "in extremis" for highly-indebted clients.
Mr Sandler also disclosed he plans to review the scheme in the third quarter of this year to see whether it needs adapting amid the credit crisis.
Asked why he took the job, he said: "I am not doing this for financial reward. I am doing this because it is something that needs to be done and I was asked to do it by the Government. There is a degree of public-spiritedness, I hope, in my response to that request."
The response of Sandler towards rescuing Northern Rock omits the political calculations on the part of the government but implicitly recognises that the bank was nationalised.