LONDON — The decision to provide emergency funding to Northern Rock should have been kept secret, the then governor of the Bank of England said, but was told it would be illegal.
The news broke on 13th September 2007, prompting thousands of customers to rush to withdraw their money in the days afterwards, a crisis known as a “bank run.”
Mervyn King, who was governor at the time, said he had recommended the deal be kept secret to prevent exactly that sort of panic.
“My advice was very clear,” he told BBC Inside Out, North East & Cumbria, “we should not reveal publicly the fact we were going to lend to Northern Rock.”
The bank had also wanted the bail out to remain a secret, an inside source told the BBC, but was told that would be “illegal.”
King said he had also been advised that keeping the information from the public would be “against a European directive,” but said that “none of my colleagues in Europe believed that for a minute.”
After the news of Northern Rock’s assistance broke, the bank’s shares plummeted 32%. It was nationalized in January 2008, and was bought by Virgin money in 2012.
Robert Peston, the BBC journalist who broke the story, told the BBC, “If I had not reported that event I would have been guilty of playing God in an incredibly patronizing way.
“I’d have been effectively saying that adults were not capable of understanding the significant information and that would have been an appalling thing for any journalist to do.”
King agreed that Peston had acted responsibly.
Also in 2007, the Bank of England lent £61.2 billion to Royal Bank of Scotland and HBOS, which was not made public knowledge until 2009.