By JANE WARDELL

LONDON (AP) ¿ The British government allowed Northern Rock to continue making risky loans for another six months after it became the first bank to receive a state bailout, a report by a public spending watchdog revealed Friday.

In the most damning review so far of the government's ability to contain the financial crisis, the National Audit Office also said the Treasury knew about shortcomings in banking oversight as far back as 2004 ¿ but did not make the issue a priority.

The office concluded overall that the government was right to step in and take control of Northern Rock given the potential loss to taxpayers from a private sale, but that finding was overshadowed by critical detail in its 58-page report revealing that lawmakers were underprepared and slow to respond to the crisis.

"The government dithered over this for months and a great deal of damage was done," Vince Cable, a lawmaker in the opposition Liberal Democrat party, told the BBC.

Cable added that the government appeared to have learned from some of its early mistakes, but said that concerns remained about the government's ability to direct other banks it has since taken majority stakes in, including the Royal Bank of Scotland, one of the world's biggest financial groups.

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