Bank of England's secret £61bn loans to save banks

Secret loans totalling £61.6 billion to two struggling banks were revealed for the first time today.

The colossal sum, equivalent to almost twice the defence budget, was advanced to Royal Bank of Scotland and HBOS in emergency funding in October and November last year.

In return the Bank of England took £100 billion worth of assets as collateral. This morning's disclosure begged the question of how much more taxpayers' money has been secretly lent to prop up embattled banks or financial institutions since the credit crunch began.

Bank of England governor Mervyn King came clean in surprise evidence to the Commons Treasury Committee. He said such loans were made "in exceptional circumstances... to prevent a loss of confidence spreading through the financial system as a whole".

The loans had bought time for the banks to look for new rescue and funding options and they had since paid them off and had the collateral returned.

He defended the need to keep such operations quiet — even to the point of keeping the details out of the Bank's annual report — on the grounds that disclosure would panic investors and inflict damage on a bank that needed help.

"In most cases, confidence can best be sustained if the bank's support is disclosed only when the conditions that gave rise to potentially systemic disturbances have improved to the point where the disclosure itself should not be a cause of such disturbance," he told the committee of MPs.