UK Banks Given Secret Loan of Over £62 Billion

In a revelation that has shocked the nation, the UK government has announced that the banking system teetered on the brink of utter collapse in late 2008, causing government decision makers to approve over £62 billion in clandestine loans to two of Britain’s most powerful banks. According to official documents disclosed only a short while ago and evidence turned in to the Treasury Committee in London, the move was made without informing taxpayers because it was feared that the already wobbling markets might grow even more unstable and that there could have been widespread public panic as a result.

The emergency financing was taxpayer-funded, and given to the Royal Bank of Scotland (RBS) as well as HBOS, each borrowing £36.6 billion and £25.4 billion, respectively. HBOS, which is now owned by Lloyds Banking Group, got its cash injection on October 1st of 2008 and then, less than a week later, the RBS received its boost. This came only weeks after Lehman Brothers Holding declared bankruptcy and the UK markets looked ready to nosedive. After even more loans further injections of capital this month, in excess of £30 billion for each bank, both Lloyds and RBS are now largely owned by the government. The government stake in the banks now stands at 43% of Lloyds and a shocking 84% of RBS.

The Bank of England, which made the loans, was granted indemnity by the Treasury in order to cover any potential losses caused by the emergency loans. The total amount of loans granted to these two banks alone is higher than the £49 billion spent on UK schools and larger than the national defence budget, as well. Although the banks have paid back the loans, the government continues to hold stake in both of them, causing questions to arise in light of the fact that both the HBOS and RBS were defendants in a recent court case, regarding unfair overdraft charges, which made its way to the Supreme Court.

For the past two years, the Office of Fair Trading (OFT) had been pursing HBOS, RBS and several other lending institutions because those banks were charging upwards of £20 to £50 to customers who accidentally exceeded their overdrafts. The OFT had won its case in both High Court and the Court of Appeal, with experts predicting a nearly guaranteed victory if the banks appealed to the Supreme Court. The hearing in the UK’s highest court took place in June of 2009, a mere 9 months after the government gained control of stock in both HBOS and RBS. When the shocking result, that the government’s own consumer protection agency OFT had been refused the power to investigate the overdraft charges that many customers been expecting to have refunded, many expressed speculation that the move might have been made to save the government from shelling out the £20 billion that would have been paid back to those charged unfairly.

Had that enormous sum been required, the government’s shares in the banks would have dropped and this leads many to question not only the billions in secret loans, but the swift change in court rulings, as well. An unprecedented number of UK citizens are already struggling under enormous debt loads and many had hoped to have the overdraft charges returned to them through the OFT, possibly in time for Christmas. While some had wanted to balance their budgets and take a holiday, many others needed the money to repay debts and get family finances back on track. Now these individuals will be turning to Debt Management Programmes or Individual Voluntary Arrangements since it appears that there is no chance they will be compensated for the unfair charges to their accounts.

Consumer advocate groups are expressing outrage and political speculators believe the situation could be a conspiracy simply based on the fact of who stands to benefit from not only the loans being kept secret, but the Supreme Court decision regarding the OFT’s powers. Could this be a conspiracy? Could this essentially boil down to government sanctioned predatory lending that comes at the expense of tax payers?