Government defends secret HBOS and RBS loans

The loans were made last October, at the height of the financial crisis, and were paid off in full by January of this year.

However the existence of the loans was disclosed to the public only yesterday by Mervyn King, the Governor of the Bank of England.

Mr Darling told the Commons, “Over the last year we’ve had to provide extraordinary support in what are extraordinary times... I made it clear that we would to whatever it took to stabilise the banking system. As a result no savers in UK banks or building societies have lost money.”

“Inevitably some of the support has had to be provided on a confidential basis... The judgement as to when it is the right time to disclose such operations is a fine one but I support the decision of the Governor’s decision to disclose this information yesterday.”

Both the Shadow Chancellor, George Osborne, and Liberal Democrat Treasury Spokesmen, Vince Cable, supported the loan in principle but raised other questions.

Mr Osborne said that the episode raised questions of how banks had been allowed to come so close to collapse in the first place, while Mr Cable questioned why the government had taken over a year to let the public know about the loan.

This morning Treasury Minister Lord Myners also defended the loans saying, “It’s worth remembering that back in October [2008] we really were on the edge of a precipice where the banking system was very close to complete collapse. The Governor wanted to wait for the right time to make the announcement and he concluded that now was the right time”.

Lord Myners said that Lloyds Banking Group’s latest rights issue and the news that RBS has signed its asset purchase agreement with the government, meant that the banking system was now stable enough to make the loans public.