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Darling in plan to allow secret bank rescues

Chancellor Alistair Darling has set out proposals to allow the Bank of England to offer secret help to banks suffering liquidity problems.

A joint consultation document from the Treasury, Bank of England and the FSA recommends that the BoE should be allowed to delay revealing emergency help to a bank in special circumstances.

It says: “The Government recognises that maintaining transparency in financial markets is important and that emergency liquidity assistance should therefore be disclosed to markets at an appropriate stage. However, recent events have suggested that there may be special circumstances where, if possible, a period of non-disclosure of ELA is desirable.”

Darling unveiled plans for banks to contribute to a fund to repay savers if a bank fails, which will be separate from the Financial Services Compensation Scheme, but says he has no plans to increase the £35,000 limit on FSCS compensation.

Conservative Shadow Chancellor George Osborne says the plans mirror proposals put forward by the Tories in December.

Osborne says: “We will work with the Government to implement these reforms but we will fight to ensure that the Bank of England is not, as in this document, sidelined in the crucial job of rescuing failing banks and protecting stability.”

The British Bankers’ Association says the document addresses many of the issues the BBA has already raised with the Government.

A BBA spokesman says: “Areas of key importance are the clarification of the roles and responsibilities of the FSA and the BoE, emphasis on early intervention and prevention, including a special resolution regime, and recognition that on liquidity issues, the problems of the credit crunch require international coordination.”

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