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King denies criticising Treasury King denies criticising Treasury
(about 2 hours later)
The governor of the Bank of England, Mervyn King, has denied that he criticised the Treasury for its handling of the Northern Rock crisis.The governor of the Bank of England, Mervyn King, has denied that he criticised the Treasury for its handling of the Northern Rock crisis.
Mr King told MPs he had not said that the department was "unable to focus because morale throughout the government is so low".Mr King told MPs he had not said that the department was "unable to focus because morale throughout the government is so low".
The comments had been attributed by economist Irwin Stelzer to a senior Bank of England official.The comments had been attributed by economist Irwin Stelzer to a senior Bank of England official.
Mr King said he had met Mr Stelzer but insisted the comments were not his.Mr King said he had met Mr Stelzer but insisted the comments were not his.
"None of the comments in the article I recognise and they're certainly not my views," he said."None of the comments in the article I recognise and they're certainly not my views," he said.
"I don't believe that anyone in the Bank would make comments like that"."I don't believe that anyone in the Bank would make comments like that".
There are things going on in the markets that require immediate attention rather than sitting around waiting for a select committee to make a recommendation Irwin Stelzer 'Serious concern'
Mr King was answering questions from the Treasury Select Committee about his handling of the woes at Northern Rock.Mr King was answering questions from the Treasury Select Committee about his handling of the woes at Northern Rock.
There are reports that the Treasury is looking at plans to limit the Bank of England's powers in such situations. And he also told the committee that there was more bad news to come for the financial sector.
Officially the government is backing the governor, with a spokesman saying he was doing "a first class job". "A painful adjustment faces the global banking sector over the next few months as losses are revealed and new capital is raised to repair bank balance sheets," Mr King told MPs.
Slow to react "The problems in the financial sector remain with us."
Central banks have joined forces to prevent a sharp slowdown in the world economy due to the credit crunch - this week alone putting about $600bn into the money markets.
This includes £10bn which the Bank of England made available on Tuesday.
"In the last four weeks, banks themselves have been worried that the impact of their reluctance to lend will lead to a sharper slowdown in the United States," Mr King warned.
"That concern is a serious one because it does hold out the prospect that there will be a self-reinforcing downturn in credit and activity."
'Create authority'
It was such a slowdown which saw the troubles begin at Northern Rock.
And the select committee has been considering criticism that the Bank of England was slow to react to the problems and that it should have done more to calm financial markets during the subsequent weeks.
Under the current tripartite system the Bank of England governor, the chancellor and the head of the Financial Services Authority are supposed to work together.Under the current tripartite system the Bank of England governor, the chancellor and the head of the Financial Services Authority are supposed to work together.
The committee is considering criticism that the Bank of England was slow to react to problems at Northern Rock and should have done more to calm financial markets during the subsequent weeks. Mr King's told MPs his main criticism of the system was that nobody had the power to intervene early enough to deal with a failing bank.
Mr King's main criticism of the tripartite system was that nobody had the power to intervene early enough to deal with a failing bank. Asked whether the system should be replaced with a new authority, he said it was "most important we create powers for some authority to intervene pre-emptively".
He was asked whether the system should be replaced with a new authority to deal with a crisis. Reaching a reorganisation of Northern Rock is made much more difficult by the fact that the shareholders can block a sensible discussion Mervyn King, Governor, Bank of England
"It's most important we create powers for some authority to intervene pre-emptively in a failing bank," Mr King said. "What's most important is that someone's got it (power) and can exercise it," Mr King added.
"What's most important is that someone's got it and can exercise it." The governor said that he did not mind who held that power and had "never fought any turf battles".
He added that he did not mind who held that power and had "never fought any turf battles". The lack of adequate tools for dealing with a failing bank had been identified by crisis management exercises in 2006 and the Treasury had been working on finding a solution since then, he said.
He confirmed that the Treasury has decided to extend the guarantees for Northern Rock to cover any losses suffered by financial institutions which provide money to it.
But he expressed some frustration at the way that the sale has been going.
"Reaching a reorganisation of Northern Rock is made much more difficult by the fact that the shareholders can block a sensible discussion," he said.
'Problem in execution'
Before speaking to Mr King, the committee heard from the trade associations of banks and building societies.Before speaking to Mr King, the committee heard from the trade associations of banks and building societies.
"We do support the tripartite system - the problem was in execution rather than structure," Angela Knight from the British Bankers' Association told the MPs."We do support the tripartite system - the problem was in execution rather than structure," Angela Knight from the British Bankers' Association told the MPs.
But she said research was needed into what would have happened if action had been taken earlier.But she said research was needed into what would have happened if action had been taken earlier.
Adrian Coles from the Building Societies Association said that one role which needed clarifying was which of the authorities was responsible for communicating with creditors when there was a crisis of confidence.Adrian Coles from the Building Societies Association said that one role which needed clarifying was which of the authorities was responsible for communicating with creditors when there was a crisis of confidence.
'Independence threatened'
The shadow chancellor George Osborne has accused the government of briefing against Mr King.
Mr Osborne said the Conservatives believed that the Bank of England rather than the Treasury should have greater powers to be able to step in to control problems similar to those which befell Northern Rock.
He said plans being considered by the chancellor to take more powers to the Treasury would threaten the independence of the Bank of England.
Northern Rock was plunged into crisis earlier this year when problems on the world's credit markets forced it to seek emergency funding from the Bank.Northern Rock was plunged into crisis earlier this year when problems on the world's credit markets forced it to seek emergency funding from the Bank.
It is now being kept going by a loan of at least £25bn from the Bank and is seeking bidders to rescue it.It is now being kept going by a loan of at least £25bn from the Bank and is seeking bidders to rescue it.
The Liberal Democrats have argued that Northern Rock should be nationalised temporarily, saying plans to sell the bank will not work.
Mr Stelzer's article appeared in the Sunday Times at the weekend.Mr Stelzer's article appeared in the Sunday Times at the weekend.
He subsequently told the BBC: "The one thing Gordon Brown was always famous for was understanding a situation, especially an economic situation, and reacting quickly and positively and that doesn't seem to be happening.He subsequently told the BBC: "The one thing Gordon Brown was always famous for was understanding a situation, especially an economic situation, and reacting quickly and positively and that doesn't seem to be happening.
"There are things going on in the markets that require immediate attention rather than sitting around waiting for a select committee to make a recommendation.""There are things going on in the markets that require immediate attention rather than sitting around waiting for a select committee to make a recommendation."