Treasury and Bank move again to end credit crisis
Posted on 18 December 2007 by
The Treasury has agreed to extend its protection of Northern Rock to cover money loaned to the bank by financial institutions.
The move, announced this morning, comes at Northern Rock's request, and has fuelled speculation that the bank may now be nationalised. Although the government's preferred solution is for the bank to remain privately owned, attempts to auction the firm have encountered recent setbacks.
BBC business editor Robert Peston said: "Plainly Northern Rock feared that there would effectively be a meltdown if they didn't get this guarantee.
"This is not very far in my view from actual nationalisation."
Meanwhile, the Bank of England is set to offer lenders loans totalling £11.4 billion, as part of the coordinated action by five central banks announced last week.
The provision of loans totalling $110 billion by the central banks of England, the US, Canada and Switzerland, together with the European Central Bank, aims to counter institutions' reluctance to lend to one another. Since the move was announced, the inter-bank lending rate (Libor) has fallen from 6.627% to 6.431%, suggesting that it has had some success.
Bank of England governor Mervyn King appeared today before the Treasury Select Committee, amid some speculation over his future following his handling of the current credit crisis.
A spokesperson for the prime minister told BBC News that Mr King was "doing a first-class job".
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