It was, said one MP, “a shocking cover-up.” Another was “outraged”; a third complained about “how many jobs you could support with all this money.” The broadsheets prominently covered the scandal. The cause of the distress? The announcement on 24th November that, in autumn 2008, the Bank of England provided emergency liquidity assistance (ELA) to the Royal Bank of Scotland (RBS) and Halifax Bank of Scotland (HBOS). These “secret loans” totalled about £60bn and were repaid by RBS in December 2008 and HBOS in January 2009.
Those acquainted with the workings of London’s wholesale money markets were unsurprised by the announcement. It was widely known that the Bank of England had provided significant liquidity to banks that were unable to fund themselves, until things got better. And it wasn’t especially hard to guess the likely recipients of the Bank’s help. At most, for the insiders, the Bank had filled in
ROLAND_BAKER
The fuss I think was because one of the banks raised equity in a rights issue without declaring that it was receiving emergency liquidity assistance. This bore on its solvency and might have caused the rights issue to go unsubscribed if investors felt some priority creditors were not revealed.
The correct response to the issue raised by Robert Peston in the Northern Rock and HBOS cases is NOT for the Bank of England to present accounts describing ELA as “other” and keeping bank shareholders in the dark.
The facts that Robert Peston works for the BBC and his father is in the House of Lords do not put him above the law. FSMA 2000, ss345-348 is clear. A complaint was made against him for revealing confidential information. The correct response was for the FSA to prosecute him and the BBC to end his contract.