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Bank of England hits back at Northern Rock’s accusations

The Bank of England has rejected suggestions made by Northern Rock’s management at the Treasury select committee that talks with an unnamed party broke down before the bank run because the BoE refused to offer a backstop facility.

In a statement the Bank says it was approached on the weekend of September 8-9 by a potential bidder wanting loans of up to £30bn – over one to two years without a penalty rate of interest – as part of the deal.

The BoE said: “The authorities including the Bank of England recognised the advantages of a takeover. They also agreed that in the circumstances it would be inappropriate to help finance a bid by one bank for another.”

It said offering such a loan facility would have broken rules on central banks offering state aid.

Northern Rock approached the BoE for emergency funding on September 13 after talks broke down wth the unnamed party, understood to have been Lloyds TSB.

The grilling of Northern Rock’s management team at the TSC on Tuesday saw chairman Matt Ridley and chief executive Adam Applegarth make it clear that they were willing to resign during the bank run but said the overwhelming feeling of shareholders was they were needed in the short term to guide the bank through the crisis.

Applegarth said there was nothing more he could have done to stop the crisis but laid blame at the BoE for not allowing a lender of last resort facility before the bank run, something he said could have averted problems.

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