A TV programme will tonight examines whether Northern Rock could have been saved if rescue deals subsequently given to other banks had been made available to it.
Northern Rock, formerly a building society, was the first British bank in 150 years to fail due to a bank run after having had to approach the Bank of England for emergency support during the credit crisis of 2007.
During the early noughties the Newcastle-based company borrowed substantially to fund mortgages, with the aim of ambitious growth.
The global banking crisis meant it was unable to produce income as expected from these loans, and was at risk of being unable to repay the amounts it had borrowed.
News that the Northern Rock had approached the government for support with its liquidity led within 24 hours to a public lack of confidence and concerns that savings were at risk.
The bank failed following a bank run as people rushed to withdraw their savings.
Unable to find a commercial buyer or secure the further government support needed, it was taken into public ownership in 2008, as an alternative to insolvency and collapse.
Tonight, a special half-hour edition of BBC's Inside Out North East and Cumbria investigates whether Northern Rock could have been saved and whether shareholders could have received compensation for the thousands they lost
The former Governor of the Bank of England tells the programme he was stopped from mounting a secret rescue.
Inside Out presenter Chris Jackson asks whether a proposed takeover from rival bank Lloyds would have solved the problem if it had been allowed to go ahead, and questions whether the Bank of England did enough to help.
A Northern Rock senior insider claims the takeover was blocked by the Bank of England, saying: “Lloyds were keen, but they wanted a Bank of England guarantee for the money. The Bank of England refused.”
The two men in charge of deciding the future of Northern Rock – Alistair Darling, the then-Chancellor of the Exchequer and Mervyn King, who was Governor of the Bank of England - deny there was ever a serious offer from Lloyds.
Darling told Inside Out: “I’d have welcomed any approach that was going to work. The problem was Lloyds showed an interest for a couple of days, but never made an offer or anything.”
And Mr King said a quick fire sale to Lloyds was never going to happen: “Well, Lloyds never came to me and said 'would you lend to enable us to buy Northern Rock?'. And I think they did it because they knew it was pretty silly for them to ask for money which was a special subsidy to them.”
Inside Out questions whether the Bank of England could have saved Northern Rock by giving them money secretly, without informing the Stock Market.
The Northern Rock insider says, “Lending without letting the markets know would have got us through, but we were told it was illegal. Yet this was made available to other banks a few months later to the tune of more than £61billion.”
But Mr King said: "My advice was very clear – that we should not reveal publicly the fact that we were going to lend to Northern Rock. But the advice of the lawyers and the FSA was that this could not be done. It was against a European directive. Actually, none of my colleagues in Europe believed that for a minute.”
The former head of the FSA Sir Hector Sants declined to provide Inside Out with a comment.
Mr King also claims in the programme that he wanted to set in place a plan to pay shareholders once the bank returned to profit.
Northern Rock was nationalised in 2008, and people who had bought thousands of pounds worth of shares ended up with nothing.
When asked by Inside Out if it would ever pay compensation, The Treasury issued a statement to say it was continuing to recover the costs of the bail out.
Yet despite the loss to shareholders, it seems the Government hasn’t lost out. Northern Rock mortgages are now doing well and it’s reported the Government could make a hefty profit of between £8 and 11 billion.
* The Inside Out special about the collapse of Northern Rock is on BBC One tonight at 7.30pm and available on the BBC iPlayer for 30 days