BoE warns govt on Northern Rock buyout

LONDON: Britain's government had an opportunity to help finance a takeover of troubled mortgage lender Northern Rock by rival Lloyds TSB but the Bank of England warned against the consequences of such a move, it emerged on Tuesday.

The revelation by BoE chief Mervyn King in aninterview comes amid renewed concerns over the global fallout from the US subprime or high-risk home loan crisis. King said the collapse of the Lloyds TSB takeover deal had prompted Northern Rock to request emergency funding from the BoE in September.

The central bank bail-out sparked the first run on a British bank in living memory as panicking customers rushed to withdraw their savings from Northern Rock. The clamour died down after the government vowed to protect all deposits.

According to King, Lloyds TSB had wanted the BoE to lend it 30 billion pounds (43 billion euros, 62.5 billion dollars) at a competitive interest rate to help finance a takeover of Northern Rock.

King said he told British finance minister Alistair Darling, whose official title is chancellor of the exchequer, that it was not the central bank's job to fund takeovers.

"I said to the chancellor: 'This is not something which a central bank can do,'" King told the media.

"They don't normally finance takeovers by one company for another, let alone to the tune of 30 billion pounds, which is rather a lot of money.

"So I said, 'This is a matter for government but you have to recognise that if you were to make available such a facility to one bank, you would have to make it available to any other potential bidder and therefore it will become public.'"

Since early August, world financial markets have been rocked by a global credit squeeze, which resulted in a funding crisis for Northern Rock.

Commercial banks have become very nervous about lending cash to each other amid fears over possible exposure to the US housing market slump, creating a credit crunch.

Before its collapse, Northern Rock was the fifth-biggest provider of home loans or mortgages in Britain but it has since seen its market share plunge.