King told MPs at this morning’s meeting that four pieces of legislation had created a landscape that led to the Northern Rock episode and that changes were required to both UK and European legislation.
King said he had wanted to act covertly in offering the lender of last resort facility to Northern Rock last week but after legal advice was informed the Market Abuses Directive meant this action had to be made public.
King said UK takeover rules made it very difficult for regulators to organise a quick sale of a bank.
He also attacked the processes in place when a bank goes into administration suggesting that the fact assets are frozen rather than immediately transferred to another institution and that consumers are offered less than 100 per cent of their funds contributed to the panic that spread across the Country.
He said if any of these four elements had not been in place the problems at Northern Rock would probably not have occurred.
He said: “The interaction between different pieces of unconnected legislation made it almost impossible for us to act as a lender of last resort in the way that I would prefer.”
King denied that he was leant on by the Government to offer the full guarantee to Northern Rock customers saying the decision was made on Sunday after discussions with the FSA and Treasury.
He also denied reports that the actions of the BofE had impeded a suitor taking over Northern Rock which would have avoided the run on the bank. He said the FSA had asked him if the lender of last resort facility would be rolled over in the case of a takeover and he confirmed that it would be.
He said the current guarantee in place needs to be moved away from as quickly as possible and new measures were needed to ensure consumer confidence.
Committee chairman John McFall, Michael Fallon and George Mudie were among the committee members providing the tough questions to King, deputy governor Sir John Gieve and executive director for markets Paul Tucker.