The secret £62billion: Bank of England kept quiet about massive cash lifeline for RBS and Halifax to avoid a national panic
By
Sam Fleming
Last updated at 2:04 AM on 25th November 2009
The Bank of England secretly loaned £61.6billion to two banks at the height of the financial meltdown last year.
A 'dire emergency' meant covert crisis loans were extended to stricken lenders Royal Bank of Scotland and Halifax Bank of Scotland at the beginning of October 2008 - before they were partly nationalised.
The Bank of England revealed the details for the first time yesterday.
Governor of the Bank of England, Mervyn King gives evidence to Commons Treasury Committee this morning where he warned that the economy still faced 'profound challenges'
It said it has waited until now to disclose them because it feared the revelation could trigger panic.
Officials believe the aid can be safely revealed now because the two firms have shored up their finances via a series of taxpayer-backed fundraisings.
Total use of the Emergency Liquidity Assistance by the two firms
peaked at £61.6billion, secured on £100billion of mortgage and other
assets. HBOS's borrowing hit more than £25billion, while RBS's peaked
at more than £36billion.
The loans were repaid a few months later by the banks, which are now partly owned by the taxpayer.
But MPs expressed disbelief that such a vast sum could be offered to two private sector institutions without any Parliamentary sanction.
The revelations lay bare the state of near collapse in Britain's banking system in the autumn of 2008.
Officials feared that if they failed to intervene, cashpoints could run out of money, cheques would fail to clear, and the entire financial system could implode, triggering chaos on the streets.
Cash call: Lloyds is offering its private investors shares at a hugely discounted price to raise money
The disclosures will provoke fury among Lloyds shareholders, who were asked to support a takeover of HBOS in November 2008 without being informed of the undercover loans it had racked up.
Dr Ros Altmann, a former Downing Street adviser, said last night: 'This is a silent coup d'etat. Our national wealth is being transferred to the banking sector. It is deeply worrying.'
Liberal Democrat Treasury spokesman Vince Cable said: 'Given the
sheer size of the support these two banks were receiving, it is
astonishing that this was kept secret for over a year.
'The Government has treated taxpayers like children while expecting them to foot the bill for these banks.
'What is particularly concerning is that the Government was pumping billions into HBOS at the exact same time it was convincing Lloyds to take it over.'
City minister Lord Myners last night refused to say whether further secret loans had been made by the Bank of England, which is led by governor Mervyn King.
He also revealed that the board of Lloyds knew about the secret loan to HBOS prior to agreeing to a merger of the two banks.
'The board of Lloyds was fully in the picture, knew exactly how much support HBOS was receiving, as did their legal advisers, and they concluded it still made a considerable amount of sense for Lloyds and HBOS to merge,' he said.
The Bank last night denied it had published the figures because the loans would be revealed in a National Audit Office report due next week.
Testifying to MPs, Bank deputy governor Paul Tucker said the Emergency Liquidity Assistance was necessary to buy time.
'This was a dire emergency,' he said. 'This was tough stuff; this was absolutely a classic lender of last resort operation.'
Explore more:
- People:
- Paul Tucker,
- Mervyn King,
- Vince Cable
- Organisations:
- National Audit Office
Dam rough on people that relied on Lloyds for income, then told to sell their shares at a massively reduced price thus ruining any future they might have had, is doughnut brown going to compensate them or are they just a few old ladys who lost their blouses and not worth a second thought. Is it worth it doing the so called right thing when some idiot can comes along and make it the wrong thing. The sad is when you make a mistake you pay the cost, but not these clowns, there well looked after no matter what. Something should be done about that. Let them sweep the streets maybe.
- alex, clacton england, 25/11/2009 03:58
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