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Last Updated: Thursday, 20 September 2007, 10:56 GMT 11:56 UK
Highlights from Mervyn King's testimony
Bank of England governor Mervyn King has been defending his handling of the Northern Rock banking crisis before MPs.

Here are a selection of his comments given in testimony to the Treasury Select Committee.

ON THE QUEUES AT NORTHERN ROCK BRANCHES

"Once the run started, people were not behaving illogically in joining in and wanting to take out their money."

WHY THE BANK ACTED TO GUARANTEE NORTHERN ROCK SAVINGS

"I think the events of the last week and the impact on confidence that people have in the banking system generally could have been shaken by scenes seen on television. I don't think there was any fundamental reason to doubt that."

IS THE SAVINGS GUARANTEE A LONG-TERM SOLUTION?

"Our system for dealing with insolvency of banks and depositors' insurance is markedly inferior than of other countries. I think it needs to be acted upon speedily.

"This is not a sustainable solution. It is very important to move as quickly as possible to a sensible framework. This will not be where we started."

WHEN WAS THE BANK AWARE OF THE GLOBAL CREDIT CRUNCH AND IMPLICATIONS FOR NORTHERN ROCK?

"What happened on 9 August was there was the realisation of an event that we had been warning against for a long time which was that the markets and securities that many banks and others have been creating suddenly dried up.

"The 14th August was when the first tripartite phone call between deputies took place and I was alerted to it[Northern Rock's situation]."

ON CRITICISM THE BANK AND OTHER AUTHORITIES WERE SLOW TO ACT TO GUARANTEE SAVINGS

"The root cause [of the problem] is not who does what. The memorandum of understanding [between the Bank, Treasury and FSA] works well.

"The problem in this case came through... the economic position Northern Rock found itself in and the various constraints on the authorities to take action."

ON CRITICISM OF THE BANK'S ROLE AS LENDER OF LAST RESORT

"The way in which the Bank would have preferred to do it on this occasion is to have acted covertly as lender of last resort, to have lent to Northern Rock without publishing it."

"There are certainly question marks over it [the role]."

ON WEDNESDAY'S DECISION TO INJECT 10BN IN LIQUIDITY INTO THE BANKING SYSTEM

"The banks have clearly been urging us to do an operation like this for some time.

"We have balanced concerns about moral hazard against the concerns that arose from the beginning of this week about the strains on the banking system more generally.

"I think the real aim of trying to minimise moral hazard is not to provide liquidity at zero costs. We are not doing that."

ON CLAIMS HE WAS SUBJECTED TO POLITICAL PRESSURE

"This operation was designed entirely in the Bank.

"Of course I discussed it with the chairman of the Financial Services Authority and the chancellor. In these difficult times, it would have been wholly irresponsible not to do so.

"I give you my personal assurance that I would not do anything unless I thought it was the right thing to do."

ON THE STATE OF THE OVERALL BANKING SECTOR

"There is no threat to the stability of the banking system. The UK banking system as a whole is well capitalised."




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Bank of England boss Mervyn King faces MPs



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