Downing Street Says » Bank Loans

Asked how people could be sure that other loans wouldn’t emerge like those revealed yesterday from the Bank of England to RBS and HBOS, the PMS said that it was not for us to make any comment on whether or not there were any other loans of this type; this was a Bank of England decision and questions should be put to them. However, it was important to put things in context; one of the key functions of the Bank of England was to be the lender of last resort, which was what had happened in this case. The two banks in question were in the midst of a very serious global financial crisis at the time and the decision the Bank of England made was thoroughly thought through. Mervyn King had announced this yesterday, as it was the first opportunity he had had to brief the Treasury Select Committee on it. The money had been paid back in full and the banks and the banking system were now in a much better position. The Government’s involvement at the time had been to underwrite the loan.

Asked why Mervyn King had told people yesterday, the PMS said that was a question for the Bank of England.

Asked if it had been appropriate for the Prime Minister to publicly encourage a merger between HBOS and Lloyds at a time when Lloyds shareholders had no idea about the loan from the Bank of England, the PMS said that it was not fair to characterise it as the Government encouraging the merger; the decision to merge had been taken by the boards of the two banks concerned. There was an issue around competition and the Government had been involved in that aspect.

Put that the Prime Minister had encouraged the two banks to merge, the PMS said that the Prime Minister did not promote the merger of the two banks; the merger between two public companies was something that had to be agreed by the boards of those two companies in principle and the shareholders. The decision was made to waive the competition laws and allow the merger to go ahead once both boards and both sets of shareholders had separately voted in favour of it.

Put that Lloyds shareholders had not been aware of the state supported guarantee at HBOS, the PMS said that he would not characterise it as state support; it was a loan that was leveraged off the Bank of England balance sheet and the Bank of England asked the Government to underwrite it. This was very different from state aid. It was important to remember that the loans were paid back and that the banks were now in much better shape than they were at that time.

Put that if someone had read the Bank of England annual report with a keen eye then they would have spotted that something like this was going on, the PMS said that he did not know the detail of what appeared in the Bank of England’s annual report.

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» Wednesday, November 25, 2009

Bank Loans

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