The Bank oF England has spoken out against accusations that it could have done more to rescue Northern Rock as it was reaching crisis point, and has revealed an offer made by a major bank that tried to throw the flailing lender a life line, before customers started to withdraw their money,
It has not been confirmed, but is thought that Lloyds TSB was the major bank which offered to help Northern Rock if the Bank of England provided them with £30 million in loans that were not subject to penalty or a standard rate of interest.
Amidst cries that they could have done more to help the UK’s fifth largest lender before the situation deteriorated to the extent which it has, the Bank has now said that a lender was willing to step in, but that they rejected the proposal on the grounds that lending to one bank in order to save another would be inappropriate, and such a generous loan would have violated rules on central banks offering state aid.
Amongst critics that the Bank of England could have come to Northern Rock’s aid sooner is its Chief Executive, Adam Applegarth, who said that the bank was caught out by the credit crisis, and that disaster could have been avoided if the Bank of England had allowed a major bank to help them out.
The loan was scuppered not only by the Bank of England disallowing it, but also by the "lender of last resort's" own limited period punitive rate emergency loan, which was granted on the agreement that Northern Rock would provide the Bank of England, Financial Services Authority, and the Treasury with a viable business plan.
The Lord Mayor of London, Alderman John Stuttard has accused the press of blowing the Northern Rock debacle out of proportion by exaggerating the situation, and said that while Northern Rock has perhaps been hardest hit by the recent credit crunch, other providers have also been adversely affected.
Northern Rock is now in serious talks with the ever expanding Virgin Money, which has made a bid to rescue the company, taking on its £13 million debt to the Bank of England. Virgin MediaLloyds TSB
© Fair Investment Company Ltd