Secret bank loans kept RBS and HBOS alive
Mervy King has revealed, for the first time, that last autumn the Bank of England provided up to £62 billion in short term loans to RBS and HBOS in almost complete secrecy. This just goes to show how dire the situation was, and certainly reinforces the argument for a radical shake-up of banking regulations. If things reach a point where banks require staggeringly huge loans from the taxpayer, but without the taxpayer’s knowledge, no sane person could claim that business should be allowed to continue as usual.
As Edmund Conway points out in the Telegraph, it’s also astonishing that these loans managed to go completely unnoticed by the news media, which at the time was scrutinising the financial services sector and the British economy very closely.
You could argue that it was necessary to maintain secrecy in order to avoid spooking the public and causing a run on two of the country’s largest banks, and there’s no doubt that the government got a good deal out of this, since the money was repaid with interest of more than 1% over the standard lending rate. But, ultimately, we have to question the ethics of lending vast amounts of public money to commercial entities whilst quite deliberately keeping the public in the dark about it.
Some commentators claim that the Bank’s willingness to now reveal this information is a good sign that confidence has returned to the economy, since it shows that there is no longer a risk of a run on RBS/HBOS. We think that it shows that the British economy was on the brink of collapse last autumn, and if you really believe that the whole situation could have been entirely turned around in just twelve months, then we’ve got a great investment opportunity we’d like to tell you about…