In a report on maintaining financial stability in the banking system, published today, the committee says the Treasury authorised the Bank of England to provide emergency liquidity assistance to HBOS and RBS in October 2008.
It indemnified the Bank against potential losses, but did not inform Parliament of the support until November 2009.
Committee of public accounts chairman Edward Leigh says: “To those of us who attach the highest importance to adhering to Parliamentary procedure, it was of significant constitutional importance that the Chancellor failed for 13 months to notify Parliament of an £18bn indemnity his department had granted to the Bank of England, against potential losses in providing emergency support to RBS and HBOS.”
The committee also hit out at the Treasury for paying “success fees” to investment banking advisers where no success criteria could be specified and for paying costly retainers to firms.
The committee states: “The Treasury made extensive use of external advisers, including financial and legal advisers. The Treasury expects to spend £107m on advisers, although all but £7m is likely to be charged back to the banks.
“Two investment banks, Credit Suisse and Deutsche Bank, were appointed, initially on retainers of £200,000 a month for a year. These appointments also included the potential payment of success fees of up to £5.8m, but the contracts did not define success, instead leaving payments to the sole discretion of the Treasury.”
The Committee is now calling for the Bank of England to be audited by the National Audit Office.
It says: “Despite the enormous amounts of taxpayers’ money at stake the National Audit Office has not been able to examine directly the actions of the Financial Services Authority and the Bank of England.
“We welcome the recent announcement that the National Audit Office will shortly be appointed as auditor of the Financial Services Authority, but this leaves the Bank of England as the only member of the tripartite authorities not audited by the National Audit Office.”