The ironic thing about the whole Northern Rock saga is that the emergency loan they took from the Bank of England wasn’t actually a loan, it was an emergency credit line – an agreement to lend them money, not actually handing over the cash.
Not only this, but they haven’t had to make use of the credit line – even with customers withdrawing £2bn over the last few days.
Regular readers of Wonko’s World will know that I am a big fan of open government but some things really are better off kept out of the public eye until after the event. If it wasn’t for the Bank of England having to publish the fact that it had had a Lender of Last Resort request from Northern Rock, the bank wouldn’t be facing an uncertain future where it will most likely be sold for a fraction of its recent value to a foreign bank.
There is also a question mark over whether the Bank of England was right to refuse to guarantee a takeover bid by an English bank because of the problems with the American sub-prime mortgage sector. Whilst Northern Rock does get a large chunk of its investment capital from that market, the bank was still a going concern – albeit with liquidity problems – and comfortably solvent. The Bank of England must surely have understood the risk of not backing this takeover?