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The Bank of England will continue to bail out struggling banks in complete secrecy when necessary, a Treasury minister said today.
Lord Myners defended the practice after it was disclosed that £62billion was advanced to HBOS and RBS a year ago without MPs or taxpayers being told.
Bank of England governor Mervyn King revealed the existence of the loans yesterday. Lord Myners said the timing of the announcement had been decided by Mr King. He said bosses at Lloyds, which bought HBOS, were "fully aware" of the action.
"What we now see is how close to a meltdown we came," he said. "The important thing is that the bank system stabilised and no retail depositor lost money. We are clearly not going to talk about our tactics in future because the Bank of England itself has made clear that its ability to act covertly is a classic central bank strategy to provide confidence."
Chancellor Alistair Darling was making a written statement to the Commons on the affair after Liberal Democrat treasury spokesman Vince Cable called for him to appear before Parliament to answer questions.
Mr Cable said it was "particularly concerning" that the Government encouraged Lloyds to buy HBOS without shareholders being told how serious the bank's plight was.
"The Chancellor knew he was selling Lloyds a lemon but he did it anyway to save his own skin," he said. "The Government only wanted HBOS to be taken over so that it didn't have to fully nationalise another bank."
The banks were in such a state of crisis that their cash machines would have been unable to pay out had the secret bailout not been agreed.
Shadow chancellor George Osborne said secrecy was necessary at times.
Reader views (2)
What else has been 'redacted' from the public about their finances?
- Frank, Home Counties, England.
In normal times, loans like these are not acceptable, but times then were not normal, and I think if the Bank of England had not supported the banks in this way, we would have then seen a 1930s style depression - and the concequences for us all would have been terrible.
This announcement does lead to another question. How much did the Directors of Lloyds TSB know when they took over HBOS - if they did know, they clearly did not act in the best interests of their shareholders by taking over HBOS, and if they did not why not???
- Very Angry At Mp'S Expenses, Home Counties
