BoE killed off HBOS, claims top economist

A former Monetary Policy Committee member has claimed that mis-handling of the Special Liquidity Scheme by the Bank of England was the final nail in the coffin for HBOS.

Willem Buiter, professor of European political economy at the London School of Economics, says the Bank inadvertently brought about the demise of HBOS by announcing the cut-off date for the scheme.

He says: “It was a big mistake to announce in the summer that the SLS would close in October.

“That was effectively a death sentence for HBOS. When you ann-ounce the closing of a facility on a specific date you create a focal point for speculators to coordinate their efforts. It was a tragic error.”

Buiter’s comments formed part of his address to delegates at the Council of Mortgage Lenders annual conference, held in London last week.

Steve Khan, proprietor of The Mortgage Trading Consultancy, agrees with Buiter.

Khan says: “The closing date should not have been announced. Giving a review date would have been fine but limiting the SLS to a specific timeframe only served to discourage investors.

“If the Bank is going to provide liquidity it should do so in an unlimited way.”