BoE embarrassment over Northern Rock continues

by Gill Montia

Story link: BoE embarrassment over Northern Rock continues

The Treasury and the Bank of England are once again attempting to explain their handling of the Northern Rock crisis.

In an interview with the BBC yesterday, Mervyn King, the Bank’s Governor, attempted to reinforce his view that both the Treasury and the Bank were untied in their approach to the crisis.

However, it appeared that Mr King was blaming the Chancellor of the Exchequer, Alistair Darling, for vetoing a prospective bid for Northern Rock by Lloyds TSB.

Mr King apparently told Mr Darling that Lloyds’ request for funding for the takeover was a matter for Government and that the Bank of England did not normally finance the takeover of one firm by another.

If the loan had gone ahead, the Bank could have been expected to make the same facility available to other potential bidders.

Lloyds TSB had approached the Bank for £30 billion and commentators have been quick to point out that Northern Rock’s borrowing from the Bank could reach that figure by the end of the year.

Had the Lloyds TSB approach been successful it could have saved Northern Rock from its near collapse and the run on its deposits.

During the interview, Mr King went on to say that Mr Darling concluded that both the Bank of England and the Government should distance themselves from any takeover of Northern Rock.

However, events have been such that this policy has had to be reversed.