11 Sep 2017

Northern Rock bailout should have been kept secret says then Governor of the Bank of England

It was revealed, back in September 2007, that the Bank of England would help support the North East bank, Northern Rock, who was in dire straights. The day after it was announced, thousands of Northern Rock customers started to queue up to withdraw their money and so began the first run on a bank in Britain since 1866.

In a recent interview with the BBC’s show Inside Out, Mervyn King, the then governor of the Bank of England, revealed that at the time he advised that the deal to bail out the bank should be kept secret to prevent panic.

He said:

“My advice was very clear – we should not reveal publicly the fact we were going to lend to Northern Rock”.

He also noted that:

“Northern Rock and the Financial Services Authority (FSA) all felt it would be a good idea to reveal it. The advice of the lawyers and FSA (about keeping the deal secret) was against a European directive. [But] actually none of my colleagues in Europe believed that for a minute”.

This is the opposite of what a Northern Rock insider told the BBC, In which they believed the bank did want to keep the bailout support a secret but was told it was “illegal”.

Sir Hector Sands, former head of the FSA has said it would be “inappropriate” for him to comment at this time.

However, a year later in 2008, it was revealed that the Bank of England did make secret loans to RBS and HBOS of at least £61.2bn, despite saying secret loans were not permitted.

By Kathryn Pegler