UK govt defends secrecy on emergency loans to banks  

(MENAFN - Saudi Press Agency)  The British government defended the right of its central bank to make secret loans to struggling banks after belatedly disclosing that the Bank of England had lent almost 62 billion pounds to two institutions last year, Reuters reported.

"I remain of the view that the Bank of England must be allowed to provide assistance to financial institutions on a confidential basis as financial stability may require," finance minister Alistair Darling said in a written statement to parliament on Wednesday.

The BoE disclosed on Tuesday that it had provided 61.6 billion pounds ($102 billion) of emergency loans to Royal Bank of Scotland and HBOS at the height of the credit crisis last year.

The BoE had not detailed the loans before for fear of their impact on the stability of the banking system. They have since been repaid.
The secrecy means that shareholders were unaware of the loans when they approved a government-brokered takeover of HBOS by Lloyds late last year.
Treasury Minister Paul Myners said that senior executives at Lloyds knew about the loan which peaked at 25.4 billion pounds for HBOS in November 2008.

"The Bank of England went to great lengths to ensure that Lloyds were fully in the picture about the support that HBOS was getting," Myners told BBC Radio 4.

The minister said the loans showed how close to meltdown the financial system came during the global credit crisis which followed the collapse of U.S. investment bank Lehman Brothers.

"Back in October (2008) we really were on the edge of a precipice where the banking system was very close to complete collapse," he said, adding that the disclosure of the loans showed the system was on a sounder footing.

"The governor (Mervyn King) clearly believes that the banking system is now stable and felt it was appropriate to make this announcement."

Defending the secrecy, Myners said there were international parallels.

"The European Central Bank and the Federal Reserve Bank have entered into similar support operations and similarly have not disclosed the extent of individual support provided to other banks."