LONDON BRIEFING:Details of secret Bank of England loans worth £62bn have only now been revealed

SO NOW we know just how close the British banking system came to collapse at the height of the financial crisis last autumn.

The Bank of England’s secret support for Royal Bank of Scotland (RBS) and HBOS – emergency loans totalling £62 billion (€68 billion) – is breathtaking in its scale. Even a year on, the massive figure has the power to shock and there was a collective intake of breath in the Westminster committee room yesterday as bank governor Mervyn King revealed it for the first time.

There can be no doubt now that we really were just hours from a complete meltdown in October 2008, as the shock waves from the collapse of Lehman Brothers swept through the global financial system. Without the emergency loans to RBS and HBOS, extended by the British central bank in its role as “lender of last resort”, there would have been panic in the streets as the cash machines ran empty and the banks barred their doors.

If that all sounds too fanciful, cast your mind back to what happened at Northern Rock a year earlier when the BBC’s Robert Peston revealed the troubled Newcastle lender had sought its own emergency funding. Its shares plummeted and customers queued round the clock, and round the block, to remove their funds. The first run on a British bank in more than 100 years subsided only after chancellor Alistair Darling gave his dramatic guarantee that all savers’ deposits would be safe.

The reaction to the Northern Rock leak a year earlier underlines just how vital it was to maintain secrecy over the emergency lending to RBS and HBOS. At the time, most people in the City of London suspected the banks were being propped up, and heavily, but nobody knew to what extent. The panic that would have been created by the disclosure of the size of the loans would have threatened the entire system.

The funds lent to the Rock were only a fraction of the £62 billion it now transpires was secretly extended to RBS and HBOS. The first loans were made at the start of October 2008, two weeks after Lehman went under, and were finally repaid on January 16th, 2009. At its peak, in mid-October, RBS was being propped up by emergency funding of £36.6 billion, while HBOS’s loans hit a high of £25.4 billion in mid-November.

The loans came on top of the other, public, support measures for the financial sector, including the special liquidity and credit guarantee schemes as well as the £37 billion government bailout.

Only now, with RBS safely part of the government’s asset protection scheme and Lloyds in the midst of a massive rights issue, have the authorities deemed it safe to reveal just how heavily the banks had to be supported. Even six months ago, the information was still thought too sensitive to release and so was withheld by the Bank of England from its annual report when it was published on May 18th.

It’s a mark of how much confidence has been restored to the system that the numbers are now in the public arena without any ill-effect. But the revelations are likely to anger those shareholders who already feel they were misled about the depth of the banks’ problems.

The loans were being handed out at the same time as the controversial government-brokered rescue takeover of HBOS by Lloyds was being put together. Had shareholders known just how dire the state of HBOS had become, would they ever have approved the deal? As the Liberal Democrat’s treasury spokesman Vince Cable put it yesterday, the chancellor knew he was “selling Lloyds a lemon”.

Shareholders in Lloyds will get a chance to make their views known tomorrow, when they gather in Birmingham to vote on the bank’s massive fundraising exercise. The £13.5 billion rights issue – the world’s biggest ever cash call – was priced yesterday at 37p a share, a hefty discount.

The government, which owns 43 per cent of Lloyds, is taking up its entitlement to new shares, meaning it must put another £5.7 billion of taxpayers’ funds into the bank, on top of the £17 billion already laid out. Investors – the bank has almost three million of them – will face substantial dilution to their stakes if they do not take up their rights.

The rationale for the rights issue is sound (the bank is raising £22.5 billion in total with a bond swap as well), as it enables Lloyds to escape the government’s costly asset protection scheme. Having already won the support of the government and institutional shareholders, the cash call looks certain to succeed – but that doesn’t mean the bank’s army of private investors will like it any better, particularly in the light of yesterday’s revelations.

Fiona Walsh writes for the Guardiannewspaper in London