Money News
Chancellor of the Exchequer, Alistair Darling, vetoed a takeover bid from LloydsTSB for Northern Rock on the weekend before the mortgage bank became the first bank since Victorian times to see a run on its deposits.
The revelation came in a Radio 4 interview with Bank of England Governor, Mervyn King, due to be broadcast Tuesday evening.
Speaking to the BBC's business editor, Robert Peston, King said the emergency talks broke down after LloydsTSB asked for a £30 billion loan - at competitive rates - that would have enabled it restructure the bank. Ironically, the Rock has since borrowed £23 billion from the Bank of England and is likely to have tapped the Old Lady of Threadneedle Street for a total of £30 billion by the end of the year.
Had the LloydsTSB approach been successful it may have saved the Rock from its near collapse and forestalled a precipitous run on its deposits as savers panicked - all of this before the Bank of England eventually decided to step in and provide emergency funding.
King told Darling that the issue was a matter for Government and that the BoE didn't normally go about the business of financing the takeover of one firm by another.
King added he told Darling that if he made available a £30 billion loan to LloydsTSB he would have to make the same facility available to other potential bidders.
What's revealing about King's statements is that far from being a Thunderbirds puppet of Gordon Brown, as is commonly portrayed, Darling was in fact in the eye of the storm, in this instance at least. And this after the Bank and the Treasury having previously claimed that rejection of the takeover was a joint decision.
King went on to say that Darling quickly concluded that not only should the Bank of England keep its distance from any takeover of the Rock but so too should Government - a policy that has since been reversed of course.
06 November 2007 © Moneyextra.com
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