Credit crisis: It rescued Northern Rock but the Bank won't splash the cash

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The Independent Online

Despite rushing to bail out Northern Rock last week, the Governor of the Bank of England, Mervyn King, has poured cold water on suggestions that it should intervene in the international money markets to ease the current credit crisis.

In a paper to the parliamentary Treasury Select Committee, he said that the Bank would only inject extra cash into the markets if there were a direct threat to the wider economy.

In other words, the prospect of some banks struggling to raise enough cash to offer new loans and mortgages at a competitive price was not sufficient reason for the Bank to take action.

Bob Diamond, the president of Barclays, has been among those calling for the Bank to pump money into the money markets.

Such a measure could make it less expensive for banks to raise cash, which they then lend out to borrowers.

Fears are growing that the lack of money available will lead to consumers being charged more for loans and mortgages.

Mr King, however, said that such a move could do more harm than good in the long term. "The provision of large liquidity facilities penalises those financial institutions that sat out the dance, encourages herd behaviour and increases the intensity of future crises," he said.

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