RBS and HBOS in secret £62bn rescue
THE Bank of England provided £62bn (€68.8bn) of taxpayer-backed emergency financing to Royal Bank of Scotland (RBS) and HBOS at the height of the financial crisis last year.
RBS, which owns Ulster Bank in Ireland, borrowed £36.6bn while HBOS, which owns Bank of Scotland (Ireland), borrowed £25.4bn in October 2008, the bank told parliament. The operations were kept secret until yesterday to prevent unnerving markets.
"Had we not done it, the cycle would have been a lot worse," Bank of England deputy governor Paul Tucker (above) told a parliamentary committee. "This was tough stuff, a classic lender of last resort operation."
Support for HBOS, now a part of Lloyds, began on October 1, 2008, two weeks after the bankruptcy of Lehman Brothers rocked financial markets and two days after Finance Minister Brian Lenihan said he would guarantee deposits and loans to Irish banks. RBS started receiving help on October 7. The aid came at a time when both banks already qualified for other measures aimed at providing liquidity to the banking system, underlining the severity of the crisis.
In September this year, Bank of England governor Mervyn King said two British banks were within hours of a liquidity shortfall on October 6 last year, and the day after as the UK financial system came to the brink of collapse.
"Two of our major banks which had had difficulty in obtaining funding could raise money only for one week then only for one day, and then on that Monday and Tuesday it was not possible even for those two banks really to be confident they could get to the end of the day," King said in a BBC interview.
Tucker said yesterday the UK banking system was facing "a dire emergency" when the Bank of England offered emergency assistance.
Total liquidity operations peaked at £61.6bn on October 17, 2008, and the two banks provided more than £100bn in collateral in the form of residential mortgages, personal and commercial loans and UK government debt, the Bank of England said. The banks were also charged fees for the use of the facilities.
RBS paid back the money by December 16 and HBOS followed by January 16, when the bank was acquired by Lloyds TSB. (Bloomberg)
- Gonzalo Vina
Irish Independent
