King defends Bank's handling of Northern Rock crisis

Published on Thursday 20 September 2007 14:35

BANK of England governor Mervyn King today defended his handling of the Northern Rock crisis to a panel of MPs.

Mr King told the House of Commons treasury select committee it would have been "irresponsible" to have intervened earlier to save the bank.

But he admitted that he might have got the balance wrong at the start of the disastrous run which saw an estimated 3 billion withdrawn in four days.

Meanwhile, the Treasury said its guarantee to Northern Rock savers would not include new accounts opened from today.

A spokesman said it would be "unfair" to other banks and building societies if its guarantee covered all savings.

Chancellor Alistair Darling stepped in late on Monday to calm the panic, with the Government rocked by pictures of long queues of panicking customers.

Northern Rock said business had returned to normal yesterday, with many people actually paying money back in to the group.

Mr King, is under severe pressure over the handling of the affair. The run on Northern Rock began when it emerged the Bank had agreed to give it emergency financial support.

Mr King then stepped in to offer further help this week, but denied he had been "leant on" by the Government to intervene.

He said it was clear that, by the time the run had begun, only a 100 per cent guarantee of retail savings deposits could have stopped the bank collapsing.

He said that the reason he didn't take action earlier was that "there was no point in blowing up the train before it hit the buffers."

But committee chairman and Labour MP John McFall said the initial actions taken were "the equivalent of screaming 'fire' in a crowded cinema."