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Two banking giants were on verge of collapse, reveals BBC’s Panorama

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by Kay Mitchell

According to the BBC’s Panorama programme, The Year Britain’s Bubble Burst, screened last night, HBOS and RBS were on the brink of collapse in early October.

The programme unveiled that the banks were finding it difficult obtaining short-term funding.

It is believed that the banks would have collapsed without the funding and were forced to obtain funding via loans and guarantees from the taxpayer.

£350 billion worth of loans and guarantees were provided by the Treasury and the Bank of England to prevent the British banking giants from going under.

The Bank of England’s Deputy Governor, Sir John Gieve, told the BBC that after exhausting all other possibilities, the only one provider was the taxpayer.

RBS received the sum of £20 billion and is now nearly 60% owned by the taxpayer, while HBOS and Lloyds TSB are set to receive £17 billion.

HBOS and Lloyds TSB are set to merge, shareholders of both banks have approved the merger and it looks likely that the taxpayer will own over 40% of the new group, which is to be called Lloyds Banking Group.

Sir John Gieve also told the Panorama programme that the severity of the current financial crisis was underestimated by the Bank of England.

Sir John Gieve said the Bank was aware that borrowing was at “crazy” levels and that the cost of houses and other assets were rising unsustainably.

However, Sir John said the Bank failed to understand the severity of the problem and what the implications would be for the rest of the economy.

Sir John Gieve is a member of the Bank’s rate-setting Monetary Policy Committee.

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News posted: December 23, 2008

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