LAST week’s volte-face by the Bank of England and the Treasury in providing a £50 billion liquidity package to banks underlines one sad fact: as a direct result of government mismanagement, thousands of Northern Rock staff will needlessly lose their jobs, and approximately 200,000 individuals have lost their hard-earned savings, as the government plans to value their shares in Northern Rock as near-worthless.

If the support had been introduced in August or September, the Northern Rock crisis would never have happened, and British banking would be in a considerably better state.

Until last week both Bank of England governor Mervyn King and Gordon Brown were in denial. They insisted Northern Rock’s problems were of its own making.

Yet Northern Rock’s funding problems were not unique, as demonstrated by the number of UK banks that took advantage of facilities offered by the US Federal Reserve and the European Central Bank. The UK government prohibited Northern Rock from accessing the ECB money.

Northern Rock then suffered the infamous run on its deposits. This was caused by rumour-mongering short- sellers and a leak to the BBC about the Bank of England rescue plan.

Northern Rock was and is a solvent bank. Its assets exceed its liabilities. Even after the government-appointed management team unnecessarily wrote down asset values, the recent accounts show Northern Rock had a tier 1 ratio — a key measure of a bank’s solidity — of 7.7%, well above most other large UK banks.

Not only was Northern Rock solvent, it was more so than most of its competitors. Even so, large shareholders, including ourselves, were willing to inject hundreds of millions of pounds to express support and give the government comfort.

Comments by King and the government that insulted Northern Rock’s “business model” are confusing since Northern Rock was operating within the relevant liquidity ratios and guidelines laid down by the FSA.

The expansion of mortgage lending in the UK, encouraged by Brown himself during his years as chancellor, has been achieved because banks, with the full approval of the FSA, have obtained hundreds of billions of pounds on wholesale markets.

Had the liquidity scheme announced last week been in operation in August or September last year he would not have been able to refuse to lend to Northern Rock.

If Mervyn King and Gordon Brown opposed the wholesale funding of the UK banking system, they should have been much more vocal about their concerns before last August. Similarly, if the Bank of England was unwilling to act as lender of last resort, UK banks and the FSA should have been informed immediately, not least because it would have breached the terms of the memorandum of understanding entered into by the FSA, the Bank of England and HM Treasury. The FSA’s report on Northern Rock explicitly stated that the FSA believed that the Bank of England would always act as lender of last resort.

Even today, Northern Rock still has an equity book value of more than £1.3 billion.

We are confident that when it comes to the end of its “temporary” period of public ownership, the government will be able to sell the shares it has taken from Northern Rock’s shareholders for significantly more than the current book value. If the Bank of England had covertly supported Northern Rock as lender of last resort, approximately 2,000 jobs would have been saved, the UK banking system would have been preserved, we would not now have a prohibitively high cost of borrowing, and approximately 200,000 shareholders, predominantly from the northeast, would not have lost their savings.

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