Banking authorities out to get Northern Rock?

By William Green on Nov 24, 09 11:31 PM

A curious story emerged today. the Bank of England lent Royal Bank of Scotland (RBS) and HBOS £61.6bn in a "dire emergency" at the height of the financial crisis.

But Bank Governor Mervyn King said that was impossible in the Rock's case despite that potentially having avoided the run on the bank.

Here's what he said in September 2007 to MPs, blaming it on the EU's MAD directive - I kid you not.

"I think the problem in the Market Abuses Directive which prevented my first preference course of action here, which was to be a covert lender of last resort, is it only came into effect in 2005, the wording in it is ambiguous.

"I had still hoped and indeed I pressed strongly for the ability to conduct a covert operation but in the end the strong legal advice among the tripartite authorities was that it could not be done," he said.

Newcastle Central MP Jim Cousins is angry about it, saying: "People in the regulatory triumvirate of the FSA, Bank of England and Treasury must have been aware that a number of British banks were going to be in difficulty.

"And it is difficult to avoid the feeling that Northern Rock was the scapegoat through which they were going to lance the boil, through which they were going to provide such a fright that everyone else would get their house in order.

"But as we know of course that wasn't a correct judgment that the scope of these problems was that it couldn't be dealt with on that basis."

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