Relations between the Governor of the Bank of England and the Chancellor hit a new low today after Alistair Darling faced a barrage of criticism from both sides of the Commons over the emergence of a £61.6 billion secret loan to RBS and HBOS.
Mr Darling was forced to make a statement to MPs this morning to explain why the Government and the Bank of England had kept secret the loan made last year to prop up the two banks. The existence of the loan – which has since been repaid – was made public by Mervyn King yesterday as part of his testimony to the Treasury Select Committee.
It emerged yesterday that the Bank of England had provided £36.6 billion in emergency loans to RBS and £25.4 billion to HBOS last year, in addition to the £500 billion of taxpayer funds used to bail out the banking system. The Bank had been so anxious about the two banks’ ability to repay the loans, they insisted on taking assets worth £100 billion to secure the £61.6 billion credit line.
THE Bank of England is the lender of last resort for British banks. That is part of its function.
It has routinely issued banks which have temporary liquidity problems with sufficient funds to tide them over their embarrassments.
So in principle the fact that the Bank lent HBOS and RBS £61.6 billion at the height of the financial crisis, last October and November, to ensure they continued to function, was not in itself remarkable.
What is remarkable, and deserving censure, is that this guarantee is only now coming to light. The Bank’s deputy governor, Paul Tucker, told the Commons Treasury Select Committee that “this was a dire emergency”.