No 10 stands by bank governor

Mr King has been weathering volatility in the financial markets

Downing Street has backed the Bank of England governor Mervyn King, following criticism of his handling of the Northern Rock crisis.

Reports over the weekend had claimed the Treasury was looking at plans that would limit some of Mr King's powers.

A spokesman for the prime minister said Mr King was "doing a first class job".

However, it was confirmed that the Treasury has been looking at how it, the Bank and Financial Services Authority oversee the banking sector.

Speculation about Mr King's position is likely to intensify when he appears before the Treasury select committee later.

Concerns first emerged over how the three bodies worked together during the Northern Rock crisis and subsequent run on the lender.

Critics have claimed that the Bank of England was slow to react to the problems, and should have done more to calm financial markets during the subsequent weeks.

As a result, many observers have called for the tripartite oversight of the banking industry, which is shared between the Bank, the Treasury and markets watchdog the Financial Services Authority (FSA), to be rethought.

Working relationship

Mr King is not alone in being criticised for his behaviour during the Northern Rock crisis, and the Chancellor of the Exchequer Alistair Darling has also been singled out.

According to the BBC's political correspondent Norman Smith it has been confirmed that Mr Darling "is reviewing the relationship between the Bank, the Treasury and the FSA".

It would be surprising, perhaps even worrying, if there weren't some tensions between the Treasury and the Bank at a time like this Nick Robinson, BBC political editor Bank set for sale Read Nick's blog on the rift

He added that "Number 10 also sought to play down speculation that Mr Darling is poised to strip the governor of his power to intervene in future banking crises - with responsibility instead passing to the Treasury".

The Shadow Chancellor George Osborne 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 that 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.

Market shock

The BBC's political editor Nick Robinson said that "it would be surprising, perhaps even worrying, if there weren't some tensions between the Treasury and the Bank at a time like this".

However, he added that a lot would depend on how Mr Darling and Mr King handled any contrary views.

"What will matter is how they're dealt with and whether the two men decide to resolve their differences amicably or discover they're irreconcilable," he explained.

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 of England.

The bank is now being kept going by a loan of at least £25bn from the Bank of England and it 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.