The retiring chief executive of the Financial Services Authority today revealed that he had supported a taxpayer-backed takeover of Northern Rock by Lloyds Bank when it got into trouble in late 2007, but his plan was blocked by the Bank of England and not supported by the Government.
Hector Sants, who leaves the FSA at the end of this month after eight years, said: “I think things would have been very different if the Government and the Bank had taken my recommendation that they should provide liquidity support to Lloyds to purchase Northern Rock.”
The former building society became the first UK bank to suffer a run on its deposits in September 2007 and had to be nationalised the following year.
“I think that would have made a difference, it would have avoided the queues and changed the general climate in relation to the old building society sector that had moved into the banking sector,” Sants told the BBC.
Sir Mervyn King, Governor of the Bank of England, has previously revealed he told the then Chancellor, Alistair Darling, that a £30 billion loan to Lloyds to enable it to buy Northern Rock was “something which central banks don’t do; it is also something which governments don’t do.”
King also said that if the Bank had offered Lloyds £30 billion to fund a takeover it would have to offered the same to rival potential bidders like Virgin, Cerberus and JC Flowers.
