MPs will quiz banking system bosses

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Chancellor Alistair Darling, Bank of England Governor Mervyn King and the Financial Services Authority chairman Lord Turner of Ecchinswell are giving evidence to the Commons treasury committee.

The session, in a committee room in Portcullis House, opposite the Houses of Parliament, will mark the first stage of the committee's inquiry into the dramatic events of recent weeks.

Prime Minister Gordon Brown and Mr Darling initially won international plaudits for their ambitious £37 billion bank bail-out plan which has provided a blueprint for similar schemes around the world.

But while the scheme was credited with preventing a catastrophic collapse of the banking system, there has been frustration that it has yet to restore the promised flow of credit to businesses as the economy heads into recession. There are also questions being asked as to how effective the Government's efforts, agreed as part of the bail-out deal, to curb the City bonus culture are really proving.

Meanwhile, one bank - Barclays - has controversially chosen to raise new capital from the oil-rich Gulf states of Qatar and Abu Dhabi rather than accept the conditions involved in accepting funds from the Government.

The hearing will take place against a backdrop of renewed uncertainty over the Government-brokered takeover of struggling HBOS by Lloyds TSB, with the possibility emerging of a rival bid from Edinburgh financier Jim Spowart.

The witnesses may also face questions over claims that the UK authorities knew that Iceland's heavily indebted banks were in trouble six months before they collapsed leaving dozens of UK charities, councils and other public bodies with their funds frozen and no certainty they will get their money back.

The Chancellor will use the hearing to set out details of a new regulatory body to oversee the Government's stake in the banks, the Treasury later confirmed.

The arms-length body will closely monitor activity, especially lending to small businesses and the treatment of mortgage holders, but will not intervene on day-to-day decisions, a spokesman said.