Mervyn King's £61.6bn lending secret

by Rebecca Burn-Callander - Wednesday, 25th November 2009 -

The Bank of England has finally let the cat out of the bag. Last October, it lent RBS and HBOS over £60bn to keep the banks from going under. But why keep schtum?

The public had already swallowed the £500bn bailout. We had accepted that the banks were in crisis. We even knew that HBOS and RBS were in the doldrums. Why did Mervyn King make the decision to keep such a whopping great loan under wraps?

Robert Peston, BBC business editor, has his theory: "The authorities - led on this occasion by Mervyn King, the Governor of the Bank of England - were fighting an old war, not the one actually being waged.

"They were so bruised by the run on Northern Rock, which began after I disclosed a year earlier that the Rock had asked for emergency loans from the Bank, that they felt that they had to take advantage of new legislative powers to keep such loans secret."

But what do these new revelations mean to the British taxpayer?

Peston continues: "Well, some shareholders in Lloyds will have their fears reinforced that they weren't in full possession of the facts in approving their banks' takeover of HBOS - although it's unclear whether those Lloyds owners who want redress will have their claims strengthened in a legal sense.

"Also I am not sure that this example of covert ops by the Bank of England will promote financial stability in a long-term sense. There will be many in the market who will now wonder what other horrors the Bank of England feels it can't unveil 'devant les enfants'."

Read Robert Peston's full article here.

Are you surprised by King's underhand tactics? Do you think it was the best course of action. Have your say – add a comment below.