The Bank of England looks to have bailed out Northern Rock with over 10bn since its emergency loan applica-tion, says New Star economist Simon Ward.
Ward points out that the “other assets” on the Bank of England’s balance sheet – the category including the BoE’s “lender of last resort” support to Northern Rock – increased by a further 2.9bn in the week to October 3m following a 4.9bn gain in the previous week.
Ward says “other assets” have now increased to 10.7bn since September 12, just before the run on the troubled mortgage lender. “Other assets” is a residual category covering a range of BoE activities and, according to Ward, showed limited variation before the Northern Rock crisis.
Ward says it is possible that some of these activities have contributed to the recent surge but the bulk of the increase is likely to reflect lending to the mortgage bank.
He says: “There is speculation that the Bank has been providing covert support to other institutions facing funding difficulties but this would be at odds with recent evidence from Mervyn King to the Treasury select committee, in which he claimed that the Market Abuses Directive of 2005 prevented the Bank from conducting covert “lender of last resort” operations.
“The estimated 10bn-plus size of the Northern Rock loan compares with the Bank of England’s capital and reserves of 1.9bn at February 28, according to its latest ann-ual report. The bank’s capital arguably needs to be increased if it is to be expected to conduct emergency operations on the present scale.”