Banking crisis: it's not over yet

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Just as the crisis of depositor confidence in Northern Rock seemed to be over, with queues of savers disappearing in response to the Chancellor's unprecedented offer of a full guarantee, the Bank of England has made a substantial intervention in the money markets. For many weeks highly abnormal conditions have persisted in the interbank market, where banks make short-term loans to each other, but the Bank chose today to pledge a £10 billion injection of liquidity. This should have the effect of making it easier for banks to lend to one another in a routine manner without paying the abnormally high rates they have over the past month. It follows two earlier, smaller interventions.

However, the timing of this larger intervention will raise further questions about the Bank's handling of these difficulties. The problem came to a head in August, and America's Federal Reserve and the European Central Bank acted earlier. The Bank of England instead took the principled stance that problems that could be the result of bad lending decisions should not automatically be bailed out with cheap money. Indeed the Governor went so far as to spell out this danger in a letter to MPs.

Whether the Bank should have made more moves like today's at an earlier stage, despite these concerns, is likely to be thrashed out tomorrow when its Governor, Mervyn King, appears before the Treasury select committee. At a time when there is enormous political pressure on the Prime Minister and Chancellor to show that they have headed off a crisis which sits uneasily alongside Mr Brown's claims to have achieved economic stability, MPs will be looking for someone to blame. But they should remember that the Bank's authority is a key part of the financial regulatory system and therefore of Britain's credibility as a financial centre. It is the Financial Services Authority, and ultimately the Treasury, which is responsible for supervision of individual banks such as Northern Rock. It is now up to Mr King to explain his actions and their timing - and fight back, if he can, against the temptation to find a scapegoat.