King clings on after MPs slam Northern Rock farce

Despite a nervous performance before MPs and accusations that he had stood by as the "train hit the buffers", the message from Downing Street and the Treasury was that Mr King still had the confidence of the Government.

Nevertheless the 60-year-old, who comes up for reappointment to a second five-year term as governor next year, may decide he has lost the confidence of the City and retire.

Scroll down for more...

His reputation took a further battering yesterday from the Treasury Select Committee.

Accused of failing to step in earlier to rescue the cash-strapped bank, the governor said it would have been "irresponsible" to act sooner.

He added that an early injection of funds into money markets - where Northern Rock raised most of its cash - would have "sent a signal that the UK authorities were concerned about the banking system."

During bruising exchanges, Mr King also blamed red tape for the botched bail out, saying he would have preferred to have "covertly" offered financial aid to Northern Rock.

But he was advised by lawyers that EU legislation prevented him from using old-style banking methods, such as arranging a quick buyer or sorting out a secret loan.

Instead, the Bank of England's shock announcement last Friday that it was stepping in to rescue the mortgage company triggered panic in the financial markets.

Mr King also stunned the City on Wednesday by injecting £10billion into the money markets to ease a cash crunch.

The dramatic U-turn came only days after he resisted the move because it would "sow the seeds of a future financial crisis".

Mr King's deputy Sir John Gieve was also accused of "not being up to the job" after it emerged that he had taken a two-week holiday in August at the height of the international credit crunch.

Committee chairman John McFall said: "How did we get to a situation where the effort put into rescuing Northern Rock is the equivalent of screaming fire in a crowded and darkened cinema? Everybody rushes for the door in sheer and absolute panic - all as a result of one company having a bad business model."

Labour MP George Mudie said the perilous state of Northern Rock's finances were brought to Mr King's attention on August 14.

He said: 'You were content to watch this impending disaster - this train running towards the buffers. You know what was happening, but you say you cannot do anything.

"I tell you what is horrifying. Both things - your U-turn on threemonth money and Northern Rock - were forced upon you by people queuing outside building societies."

However, Mr King insisted that he didn't take action earlier as 'there was no point in blowing up the train before it hit the buffers".

He added that the run on Northern Rock would have been worse if the Government had immediately

Mr King said there was a 'difficult balance' to strike between the need to secure the integrity of the banking system, and avoiding "moral hazard" - where banks believe they can behave irresponsibly because they will always be bailed out. However Tory MP Michael Fallon told him: 'You can't handle a financial crisis."

Mr McFall reserved particular criticism for Sir John.

He said talk about Northern Rock had been going on for some time and added: "So I think it's absurd that you should come here and say you didn't know anything about it - you are the guy in charge of financial stability."

The committee is to hold a full blown inquiry into the Northern Rock crisis and will summon Chancellor Alistair Darling to give his version of events.

Alliance & Leicester will increase some of its mortgage rates today.

Its tracker mortgages will go up by between 0.1 per cent and 0.2 per cent for new customers and people remortgaging.

The move follows similar rises by Halifax and Abbey last week.