Bank bosses to be questioned by British MPs

Bank of England Governor Mervyn King is set to face a fresh grilling from MPs today over the rescue of crisis-hit Northern Rock.

Mr King and his deputy, John Gieve, will come under scrutiny from the Treasury select committee at Westminster for the second time over the future of the stricken mortgage lender, which has borrowed an estimated £25bn (€35bn) from the taxpayer so far.

A Virgin-led consortium and the Olivant investment group led by former Abbey boss Luqman Arnold are vying to salvage the Newcastle-based group at the centre of the UK’s first bank run for nearly 150 years in September.

However, politicians including acting Liberal Democrat leader Vince Cable have said the bank is “bleeding to death” and called on the Government to nationalise the company.

At previous hearings before the committee, Mr King has admitted he would have preferred a secret rescue and called for changes to the law to give savers more confidence in the banking system.

MPs are likely to look for an update on progress towards an improved deposit protection scheme after Chancellor Alistair Darling announced plans to consult on changes to the current arrangements early next year.

Currently only the first £2,000 (€2,800) of savers’ money is 100% protected, although Mr Darling was forced to step in to guarantee all savers’ deposits to end the Northern Rock crisis.

The bank was hit by the credit crunch in August when soaring costs in money markets where it borrowed most of its cash for mortgage lending crippled its business model.

Last week the Bank of England – in tandem with four other central banks around the world – unveiled plans to pump billions extra into the financial system in a fresh bid to ease the pressure, caused by cautious banks refusing to lend to each other amid fears of losses on “sub-prime” US mortgages.

However, MPs may also ask Mr King whether the move goes far enough to reassure markets and why it took four months to organise the co-ordinated response.